**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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****

**FORM 10-K**

| **(Mark One)** | ** **                                                                                              |
|----------------|---------------------------------------------------------------------------------------------------------|
| **x**          | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
| ** **     | **For the  fiscal year ended January 31, 2007**                                                    |
| ** **     | **OR**                                                                                                  |
| **o**          | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition periodfrom         toCommission file number 1-12557**

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**CASCADECORPORATION**(Exact name of registrant as specified in its charter)

| **Oregon**                                                       |   | **93-0136592**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

**2201 N.E. 201st Ave. Fairview,Oregon 97024-9718**(Address of principal executive office) (Zip Code)

Registrant’s telephonenumber, including area code: **503-669-6300**

Securities registered pursuant to Section 12(b) ofthe Act:

**CommonStock, par value $.50 per share**

Name of exchange on whichregistered: **New York Stock Exchange**

Securities registeredpursuant to Section 12(g) of the Act: **None**

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Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. Yes o  No x

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or 15(d) of the Act. Yes o  No x

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. x

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated filer o | Accelerated  filer x | Non-accelerated  filer o |
|--------------------------------|---------------------------|-------------------------------|

 

Indicate by check markwhether the registrant is a shell company as defined in Rule 12b-2of the Act. Yes o  No x

The aggregate market valueof common stock held by non-affiliates of the registrant as of July 31,2006 was $466,182,462, based on the closing sale price of the common stock onthe New York Stock Exchange on that date.

The number of sharesoutstanding of the registrant’s common stock as of March 15, 2007 was11,984,653.

**DOCUMENTS INCORPORATED BYREFERENCE**

Portionsof the definitive Proxy Statement to be filed within 120 days after theregistrant’s fiscal year end of January 31, 2007, to be delivered toshareholders in connection with the Annual Meeting of Shareholders to be held June 5,2007 are incorporated by reference into Part III.

 

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**TABLE OF CONTENTS**

| PART I                                                                                                                             |   | 1  |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|----|
| Item 1.   Business:                                                                                                           |   | 1  |
| General                                                                                                                                 |   | 1  |
| Products                                                                                                                                |   | 1  |
| Markets                                                                                                                                 |   | 1  |
| Competition                                                                                                                             |   | 2  |
| Customers                                                                                                                               |   | 3  |
| Backlog                                                                                                                                 |   | 3  |
| Research  and Development                                                                                                               |   | 3  |
| Environmental  Matters                                                                                                                  |   | 3  |
| Employees                                                                                                                               |   | 3  |
| Construction  Attachments                                                                                                               |   | 3  |
| Foreign  Operations                                                                                                                     |   | 4  |
| Available  Information                                                                                                                  |   | 4  |
| Item  1A.   Risk  Factors                                                                                                     |   | 4  |
| Item 1B.   Unresolved Staff  Comments                                                                                         |   | 8  |
| Item 2.   Properties                                                                                                          |   | 9  |
| Item  3.   Legal  Proceedings                                                                                                 |   | 10 |
| Item 4.   Submission of  Matters to a Vote of Security Holders                                                                |   | 10 |
| Officers  of the Registrant                                                                                                             |   | 10 |
| PART II                                                                                                                            |   | 12 |
| Item 5.   Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |   | 12 |
| Item  6.   Selected  Financial Data                                                                                           |   | 14 |
| Item 7.   Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |   | 15 |
| Item 7A.   Quantitative and  Qualitative Disclosures About Market Risk                                                        |   | 32 |
| Item 8.   Financial  Statements and Supplementary Data                                                                        |   | 33 |
| Item 9.   Changes in and  Disagreements With Accountants on Accounting and Financial Disclosure                               |   | 64 |
| Item 9A.   Controls and  Procedures                                                                                           |   | 64 |
| Item  9B.   Other  Information                                                                                                |   | 65 |
| PART III                                                                                                                           |   | 65 |
| Item 10.   Directors,  Executive Officers and Corporate Governance                                                            |   | 65 |
| Item 11.   Executive  Compensation                                                                                            |   | 66 |
| Item 12.   Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                   |   | 66 |
| Item 13.   Certain  Relationships and Related Transactions, and Director Independence                                         |   | 66 |
| Item 14.   Principal  Accounting Fees and Services                                                                            |   | 66 |
| PART IV                                                                                                                            |   | 67 |
| Item 15.   Exhibits and  Financial Statement Schedules                                                                        |   | 67 |
| SIGNATURES                                                                                                                              |   | 70 |

 

NOTE: All references to fiscal years are defined asyear ended January 31, 2007 (fiscal 2007), year ended January 31,2006 (fiscal 2006) and year ended January 31, 2005 (fiscal 2005).

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**Forward-lookingStatements**

This Annual Reporton Form 10-K, including “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” (Item 7) containsforward-looking statements that involve risks and uncertainties, as well asassumptions that, if they never materialize or prove incorrect, could cause ourresults to differ materially from those expressed or implied by suchforward-looking statements. All statements other than statements of historicalfact are statements that could be deemed forward-looking statements, includingany projections of revenue, gross profit, expenses, earnings or losses fromoperations, synergies or other financial items; any statements of plans,strategies, and objectives of management for future operations; any statementsregarding future economic conditions or performance; any statements ofexpectation or belief; and any statements of assumptions underlying any of theforegoing. The risks, uncertainties, and assumptions referred to above include,but are not limited to:

·       Competitivefactors in, and the cyclical nature of, the materials handling industry;

·       Fluctuationsin lift truck orders or deliveries;

·       Availabilityand cost of raw materials;

·       Generalbusiness and economic conditions in North America, Europe, Asia Pacific andChina;

·       Actionsby foreign governments;

·       Assumptionsrelating to pension and other postretirement costs;

·       Foreigncurrency fluctuations;

·       Pendinglitigation;

·       Environmentalmatters;

·       Levelsof public and non-residential construction;

·       Effectivenessof our capital expenditures and cost reduction initiatives.

We undertake no obligation to publicly revise orupdate forward-looking statements to reflect events or circumstances that ariseafter the date of this report.

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**PART I**

**Item 1.**                        Business

**General**

Cascade Corporation(Cascade) was organized in 1943 under the laws of the state of Oregon. Theterms “Cascade”, “we”, and “our” include Cascade Corporation and itssubsidiaries. Our headquarters are located in Fairview, Oregon, a suburb ofPortland, Oregon. We are one of the world’s leading manufacturers of materialshandling load engagement devices and related replacement parts, primarily forthe lift truck industry and to a lesser extent the construction industry. Wealso recently began manufacturing construction attachments following ourpurchase of the assets of Pacific Services & Manufacturing, Inc.(PSM). See “Construction Attachments” in Item 1 for a description of thisbusiness.

**Products**

We manufacture an extensive range of materialshandling load engagement products that are widely used on lift trucks and, to alesser extent, on construction and agricultural vehicles.

Our products are primarily manufactured with theCascade name and symbol, for which we have secured trademark protection. Theprimary function of these products is to provide the lift truck with thecapability of engaging, lifting, repositioning, carrying and depositing varioustypes of loads and products. We offer a wide variety of functionally different products,each of which has numerous sizes, models, capacities and optional combinations.Products are designed to handle loads with pallets and for specializedapplication loads without pallets. Examples of specialized products includedevices specifically designed to handle loads such as appliances, carpet andpaper rolls, baled materials, textiles, beverage containers, drums, cannedgoods, bricks, masonry blocks, lumber, plywood, and boxed, packaged andcontainerized products.

Our products are subject to strict design,construction and safety requirements established by industry associations andthe International Organization for Standardization (ISO). Our majormanufacturing facilities are ISO certified. Product specifications andcharacteristics are determined by the expected capacity to be lifted, thecharacteristics of the load, the ambient environment in which employed, theterrain over which the load will be moved and the operational life cycle of thevehicle. Accordingly, while there are some standard products, the marketdemands a wide range of products in custom configurations and capacities.

The manufacturing of ourproducts includes the purchase of raw materials and components: principallyrolled bar, plate and extruded steel products; unfinished castings andforgings; hydraulic cylinders and motors; and hardware items such as fasteners,rollers, hydraulic seals and hose assemblies. Certain purchased parts areprovided worldwide by a limited number of suppliers. Difficulties in obtainingalternative sources of rolled bar, plate and extruded steel products and othermaterials from a limited number of suppliers could affect operating results. Weare not currently experiencing any shortages in obtaining raw materials,purchased parts, or other steel products.

**Markets**

We market our products throughout the world. Ourprimary customers are companies and industries that use lift trucks formaterials handling. Examples of these industries include pulp and paper,grocery products, textiles, recycling and general consumer goods. Our productsare sold to the end-user customer through the retail lift truck dealerdistribution channel and to lift truck manufacturers as original equipmentmanufacturer (OEM) equipment.

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In the major industrialized countries, lift trucks area widely utilized method of materials handling. In these markets lift trucksare generally considered maintenance capital investment. This tends to subjectthe industry in general, to the cyclical patterns similar to the broadercapital goods economic sector.

However, many of our products measurably improveoverall materials handling and lift truck productivity. Further, we arecontinually developing products to serve new types of materials handlingapplications to meet specific customer and industry requirements. In thissense, our products may also be generally considered as a productivityenhancing investment. Historically, this has somewhat cushioned the negativeimpact of downward trends in the lift truck market on our net sales.

In the emergingindustrialized countries, China in particular, lift trucks are replacing manuallabor and other less productive methods of materials handling. As such, lifttrucks are generally considered productivity enhancing investments in thesemarkets. We believe this makes the lift truck markets in these countriesgenerally less susceptible to downward trends in overall capital goodsspending.

**Competition**

We are one of the leading domestic and foreignindependent suppliers of load engagement products for industrial lift trucks.We compete with a number of companies in different parts of the world. Themajority of these competitors are privately-owned companies with a strongpresence in local and regional markets. A smaller number of these competitorscompete with us globally.

In addition, several lift truck manufacturers, who arecustomers of ours, are also competitors in varying degrees to the extent thatthey manufacture a portion of their load engagement product requirements. Sincewe offer a broad line of products capable of supplying a significant part ofthe total requirements for the entire lift truck industry, our experience hasshown that lower costs resulting from our relatively high unit volume would bedifficult for any individual lift truck manufacturer to achieve for mostproducts. We design and position our products to be the performance and serviceleaders in their respective product categories and geographic markets.

Our market share and gross profit throughout the worldvary by geographic region due to the different competitive environments we facein each of these regions. Fluctuations in gross profit within a geographicregion over time are generally due to a change in the competitive environmentsuch as new competitors entering a market or existing entities merging orotherwise leaving the market. Additionally, cyclical variations in productdemand directly affect margins as higher manufacturing volumes generally resultin greater fixed cost absorption and increased gross profit.

A further discussion of the competition in eachgeographic region follows:

**NorthAmerica—**We are the leading manufacturer in NorthAmerica and the preferred supplier of many OEMs as well as OEDs (originalequipment dealers) and distributors. We compete in this region primarily withsmaller regionally-based companies and a limited number of smaller foreigncompetitors. Our leading position has been achieved within the last ten yearsprimarily as the result of an acquisition which complemented our existingproduct lines, as well as through our continued focus on providing high qualityproducts and outstanding customer service.

**Europe****—**While we are also a leading manufacturer in Europe, wecompete with one Italian public company and several privately-owned companieswith a strong presence in local and regional markets. Competition in thisregion is based principally on price, resulting in lower gross profit.

**AsiaPacific—****This** region includes operations inJapan, Australia, New Zealand, Korea and South Africa. The competitive environmentvaries somewhat from country to country, and competitors vary in size fromsmaller regionally-based private companies to some larger lift truckmanufacturers. In general, we have established a strong presence throughout theregion.

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**China—****We** have operated inChina for over 20 years and have established a strong presence in the lifttruck market. Our competition consists primarily of smaller China-basedcompanies. As a result of the continued growth in China’s economy and theexpanded use of lift trucks for various industrial purposes, we have seen inrecent years an increase in the number of competitors in the Chinese market,including foreign manufacturers from Europe.

**Customers**

Our products are marketed and sold primarily to lifttruck OEDs, OEMs and distributors globally. Our primary markets are NorthAmerica, Europe, China and Asia Pacific. In addition to sales to the lift truckmarket, we sell products to OEMs who manufacture construction, mining,agricultural and industrial vehicles other than lift trucks.

No single customeraccounts for more than 10% of our consolidated net sales. Our sales to OEMcustomers account for approximately 40-45% of our consolidated net sales.

**Backlog**

Our products aremanufactured with short lead times of generally less than one month.Accordingly, we do not believe the level of backlog orders is a significantfactor in evaluating our overall level of business activity.

**Research andDevelopment**

Most of our research anddevelopment activities are performed at our corporate headquarters in Fairview,Oregon and at our manufacturing facility in Guelph, Ontario, Canada. Ourengineering staff develops and designs substantially all of the products wesell and is continually involved in developing products for new applications.We generally do not consider patents to be important to our business.

**EnvironmentalMatters**

From time to time, we arethe subject of investigations, conferences, discussions and negotiations withvarious federal, state, local and foreign agencies with respect to cleanup ofhazardous waste and compliance with environmental laws and regulations. “RiskFactors” (Item 1A), Notes to Consolidated Financial Statements (Item 8), “LegalProceedings” (Item 3) and “Management’s Discussion and Analysis ofFinancial Conditions and Results of Operations” (Item 7) containadditional information concerning our environmental matters.

**Employees**

At January 31, 2007,we had approximately 2,100 full-time employees throughout the world. Themajority of these employees are not subject to collective bargainingagreements. We believe our relations with our employees are excellent.

**ConstructionAttachments**

In December 2006, weacquired the assets of PSM, a manufacturer of construction attachments inWoodinville, Washington. The construction attachments are used on medium andheavy duty construction vehicles used in the infrastructure, demolition,recycling, forestry, utility and general construction markets. The prevailinglevels of commercial, infrastructure and general construction activityinfluence sales of these products. Housing construction has less of an overallinfluence. These products are sold through construction equipment dealers andmajor equipment manufacturers throughout the Western United States. We haveapproximately 100 employees working to design, manufacture and market theseproducts.

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**Foreign Operations**

We have substantialoperations outside the United States. There are additional business risksattendant to our foreign operations such as the risk that the relative value ofthe underlying local currencies may weaken when compared to the U.S. dollar.For further information about foreign operations, see “Risk Factors” (Item 1A),“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” (Item 7) and Notes to Consolidated Financial Statements (Item8).

**AvailableInformation**

Our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-Kand amendments to reports filed or furnished pursuant to Sections 13(a) or15(d) of the Securities Exchange Act of 1934, as amended, are availablefree of charge on or through our website at *www.cascorp.com*when such reports are available on the Securities and Exchange Commission (SEC)website—*www.sec.gov*. Once filed with the SEC,such documents may be read and/or copied at the SEC’s Public Reference Room at100 F Street, NE, Washington, D.C. 20549. Information on the operation ofthe Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

**Item 1A.**                RiskFactors

In addition to the otherinformation contained in this Form 10-K, the following are certainrisks that we believe should be considered carefully in evaluating Cascade’sbusiness. Our business, financial condition, cash flows or results ofoperations could be materially adversely affected by any of these risks. Therisks summarized below do not represent an exclusive list, and additional risksnot presently known to the Company or that the Company currently deemsimmaterial may also impair its business and operations.

**Economic orindustry downturns**

Our business hashistorically experienced periodic cyclical downturns generally consistent witheconomic cycles in the markets in which we operate. The level of sales of ourproducts reflects to a significant extent the capital investment decisions ofthe customers who buy our products and the lift trucks and other vehicles, onwhich our products are used. These customers have had a tendency to delaycapital projects, including the purchase of new equipment or expensive upgrades,during industry or general economic downturns. Past downturns have beencharacterized by diminished product demand, excess manufacturing capacity anderosion of gross profit. Therefore, a significant downturn in the markets ofour customers, including lift truck manufacturers and to a lesser extentconstruction equipment manufacturers, or in general economic conditions islikely to result in a reduction in demand for our products and could harm ourbusiness.

**Competition**

Our products do not dependupon proprietary technology to any significant degree, and therefore can besubject to intense competition. The principal methods of competition in ourmarkets are product performance and ease of use, product quality, safety,customer service and support, product lead times, global reach, brandreputation, breadth of product line and price. Our customers increasinglydemand more technologically advanced and integrated products in certain casesand we must continue to develop our expertise and technical capabilities inorder to manufacture and market these products successfully. To retain ourcompetitive position, we will need to invest continuously in research anddevelopment, manufacturing, marketing, customer service and support and ourdistribution networks.

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**Impact ofacquisitions**

We have at timesexpanded our business through acquisitions and expect that we will do so in thefuture if appropriate opportunities arise. If we are not successful inintegrating acquisitions, we may not realize the operating results that weanticipate at the time of acquisition. Future acquisitions may require us toincur additional debt and contingent liabilities, which may materially andadversely affect our business, operating results, cash flows and financialcondition. The acquisition and integration of businesses involve a number ofrisks, including:

·       Difficultiesin matching the business culture of the acquired business with our culture;

·       Assumptionof unexpected liabilities;

·       Demandson management related to the increase in our size after an acquisition;

·       Diversionof management’s attention from existing operations due to the integration ofacquired businesses;

·       Difficultiesin integrating operations and systems;

·       Difficultiesin the assimilation and retention of employees; and

·       Difficulties in retainingcustomers and integrating customer bases.

**Economic, politicaland other risks associated with international operations**

Foreign operationsrepresent a significant portion of our business. We expect revenue from foreignmarkets to continue to represent a significant portion of our total sales. Asnoted in “Properties” (Item 2), we own or lease facilities in many foreigncountries throughout the world. Since we manufacture and sell our productsworldwide, our business is subject to risks associated with doing businessinternationally.  Accordingly, our futureresults could be harmed by a variety of factors, including:

·       Impositionof foreign exchange controls;

·       Changesin a specific country’s or region’s political or economic conditions,particularly in emerging markets such as China;

·       Foreigncurrency exchange risks;

·       Seizureof our property or assets by a foreign government without our consent;

·       Civilunrest or war in any of the countries in which we operate;

·       Tariffs,quotas, other trade protection measures and import or export licensingrequirements;

·       Potentiallynegative consequences from changes in tax laws;

·       Difficultyin staffing and managing widespread operations;

·       Differinglabor regulations;

·       Requirementsrelating to withholding taxes on remittances and other payments bysubsidiaries;

·       Restrictionson our ability to own or operate or repatriate profits from our subsidiaries,make investments or acquire new businesses in foreign jurisdictions;

·       Difficultyin enforcement of contractual obligations governed by non-U.S. law;

·       Unexpectedtransportation delays or interruptions;

·       Unexpectedchanges in regulatory requirements; and

·       The burden of complyingwith multiple and potentially conflicting laws.

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**Foreign currencyfluctuations**

Changes in economic or political conditions in any ofthe countries in which we operate could result in exchange rate movements, newcurrency or exchange controls or other restrictions being imposed on ouroperations.

Fluctuations in the value of the U.S. dollar mayadversely affect our results of operations. Because our combined financialresults are reported in U.S. dollars, translation of sales or earningsgenerated in other currencies into U.S. dollars can result in asignificant increase or decrease in the amount of those sales or earnings. Inaddition, our debt service requirements are primarily in U.S. dollars,even though a portion of our cash flow is generated in foreign currencies. Significantchanges in the value of these foreign currencies relative to theU.S. dollar could have a material adverse effect on our financialcondition and our ability to meet interest and principal payments onU.S. dollar-denominated debt.

In addition, fluctuations in currencies relative tocurrencies in which our earnings are generated may make it more difficult toperform period-to-period comparisons of our reported results of operations. Forpurposes of accounting, the assets and liabilities of our foreign operations,where the local currency is the functional currency, are translated usingperiod-end exchange rates, and the revenues, expenses and cash flows of ourforeign operations are translated using average exchange rates during eachperiod.

In addition to currencytranslation risks, we incur currency transaction risk whenever we enter intoeither a purchase or a sales transaction using a currency other than the localcurrency of the transacting entity. Given the volatility of exchange rates, wecannot be assured that we will be able to effectively manage our currencytransaction and/or translation risks. Volatility in currency exchange rates mayhave a material adverse effect on our financial condition or results ofoperations. We have purchased and may continue to purchase foreign currency hedginginstruments protecting or offsetting positions in certain currencies to reducethe risk of adverse currency fluctuations. We have in the past experienced andexpect to experience at times in the future a negative impact on earnings as aresult of foreign currency exchange rate fluctuations.

**Loss of seniormanagement**

The success of ourbusiness is largely dependent on our senior managers, as well as on our abilityto attract and retain other qualified personnel. Seven members of our seniormanagement team have been with us for over 20 years, including our Presidentand Chief Executive Officer, Chief Operating Officer and Chief FinancialOfficer, who have each been with us for over 34 years. Our current ChiefOperating Officer, Terry Cathey, will be retiring in June 2007. The lossof the services of key management personnel or the failure to attractadditional personnel as required could have a material adverse effect on ourbusiness, financial condition and results of operations.

**Environmentalcompliance costs and liabilities**

Our operations and properties are subject to stringentU.S. and foreign, federal, state and local laws and regulations relating toenvironmental protection. These laws and regulations govern the investigationand clean up of contaminated properties as well as air emissions, waterdischarges, waste management and disposal and workplace health and safety. Wecan be held responsible under these laws and regulations no matter if theoriginal actions were legal or illegal and no matter if we knew of, or wereresponsible for, the presence of such hazardous or toxic substances. We couldbe responsible for payment of the full amount of any liability, whether or notany other responsible party also is liable.

These laws and regulations affect a significantpercentage of our operations, are different in every jurisdiction and canimpose substantial fines and sanctions for violations. Further, they mayrequire substantial clean-up costs for our properties, many of which are sitesof long-standing manufacturing 

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operations, and theinstallation of costly pollution control equipment or operational changes tolimit pollution emissions and/or decrease the likelihood of accidentalhazardous substance releases. We must conform our operations and properties tothese laws and adapt to regulatory requirements in all jurisdictions as theserequirements change.

We routinely deal withnatural gas, oil and other petroleum products. As a result of our operations,we generate, manage and dispose of or recycle hazardous wastes and substancessuch as solvents, thinner, waste paint, waste oil, wash-down wastes andsandblast material. Hydrocarbons or other hazardous substances or wastes mayhave been disposed or released on, under or from properties owned, leased oroperated by us or on, under or from other locations where such substances orwastes have been taken for disposal. These properties may be subject toinvestigatory, clean-up and monitoring requirements under U.S. and foreign,federal, state and local environmental laws and regulations.

**Fluctuations in rawmaterial costs and availability**

Significant cost increases in raw materials andcomponents or shortages in these items could adversely affect our operatingresults and financial condition.

To manufacture our products we purchase rawmaterials and components, principally rolled bar, plate and extruded steelproducts, unfinished castings and forgings, hydraulic cylinders and motors andhardware items such as fasteners, rollers, hydraulic seals and hose assemblies.The price of steel is particularly significant to our manufacturing costs sincemost of our products are manufactured using specialty steel as a primary rawmaterial and specialty steel based components as purchased parts. As a result,we are exposed to increases in the market prices of rawmaterials and components that we may not be able to mitigate by changing theselling prices of our products or other means.

We may also experienceshortages of raw materials and purchased parts, which in certain cases areprovided by a limited number of suppliers. Shortages may require us to curtailproduction or to devote additional financial resources to maintaininginventories of raw materials and purchased parts in excess of our normalrequirements.

**Underfunded benefitplans**

Our obligations under our postretirement benefit planand certain foreign subsidiaries’ defined benefit pension plans are currentlyunderfunded. At some time in the future we may have to make significant cashpayments to fund these plans, which would reduce the cash available for ourbusiness*.*

As of January 31,2007, our projected benefit obligations under our defined benefit pension plansexceed the fair value of assets by $2.2 million. As of January 31, 2007our accumulated postretirement benefit obligation under our postretirementbenefit plan, which is not funded, was $7.5 million. The underfunding in ourdefined benefit pension plans is due in part to fluctuations in the financialmarkets that have caused the valuation of the assets to decrease. We expectthat any required cash payments to our plans that are not fully funded will bemade from future cash flows from operations. If our cash contributions areinsufficient to adequately fund the plans to cover our future obligations, theperformance of the assets in our plans does not meet our expectations orassumptions are modified, our contributions could be materially higher than weexpect. This would reduce the cash available for our business. Changes in U.S.or foreign laws governing these plans could require us to make additionalcontributions. During the year ended January 31, 2007, a change togenerally accepted accounting principles in the United States required therecording of the full postretirement benefit plan liability on our consolidatedbalance sheet. In the future, additional changes could require the recording ofadditional costs related to these plans.

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**Reliance on lifttruck dealers**

Approximately 55-60%of our products are sold to the end-user customer through retail dealers. Therefore,a significant portion of our sales is dependent on the quality andeffectiveness of these dealers, who are not subject to our control. As aresult, poor performance by retail lift truck dealers could have a materialadverse effect on our business, financial condition, cash flows and results ofoperations.

**Original equipmentmanufacturers sourcing practices**

We sell 40-45% ofour products directly to OEMs, who carry inventories of finished products aspart of ongoing operations and adjust those inventories based on theirassessments of future needs. Such adjustments can have an impact on ourquarterly results.

**Item 1B.**               UnresolvedStaff Comments

None.

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**Item 2.**         Properties

We ownand lease various types of properties located throughout the world. Our executiveoffices are located in Fairview, Oregon. We generally consider the productivecapacity of our manufacturing facilities to be adequate and suitable to meetour requirements. Our primary locations are presented below:

| **Location**                | ** ** | ** **                           | ** ** | **Primary  Activity** | ** ** | **Approximate  Square**

**Footage** | ** ** | **Status** | ** ** |
|-----------------------------|------------|--------------------------------------|------------|-----------------------|------------|--------------------------------------|------------|------------|------------|
| **NORTH  AMERICA**          |       |                                 |       |                  |       |                                 |       |
| Springfield, Ohio           |       | Manufacturing                        |       | 200,000               |       | Owned                                |       |
| Fairview, Oregon            |       | Manufacturing/Headquarters           |       | 155,000               |       | Owned                                |       |
| Guelph, Ontario Canada      |       | Manufacturing                        |       | 125,000               |       | Owned                                |       |
| Toronto, Ontario Canada     |       | Manufacturing                        |       | 73,000                |       | Leased                               |       |
| Woodinville, Washington     |       | Manufacturing                        |       | 68,000                |       | Leased                               |       |
| Warner Robins, Georgia      |       | Manufacturing                        |       | 65,000                |       | Owned                                |       |
| Findlay, Ohio               |       | Manufacturing                        |       | 52,000                |       | Owned                                |       |
| **EUROPE**                  |       |                                 |       |                  |       |                                 |       |
| Almere, The Netherlands     |       | Manufacturing/European  Headquarters |       | 162,000               |       | Owned                                |       |
| Schalksmuhle, Germany       |       | Manufacturing                        |       | 81,000                |       | Owned                                |       |
| Verona, Italy               |       | Manufacturing                        |       | 74,000                |       | Leased                               |       |
| Manchester, England         |       | Manufacturing                        |       | 44,000                |       | Owned                                |       |
| La Machine, France          |       | Manufacturing                        |       | 37,000                |       | Owned                                |       |
| Brescia, Italy              |       | Manufacturing                        |       | 19,000                |       | Owned                                |       |
| Sheffield, England          |       | Sales                                |       | 10,000                |       | Leased                               |       |
| Vaggeryd, Sweden            |       | Sales                                |       | 2,000                 |       | Leased                               |       |
| Epignay, France             |       | Sales                                |       | 2,000                 |       | Leased                               |       |
| Barcelona, Spain            |       | Sales                                |       | 1,000                 |       | Leased                               |       |
| Vantaa, Finland             |       | Sales                                |       | 500                   |       | Leased                               |       |
| **ASIA PACIFIC**            |       |                                 |       |                  |       |                                 |       |
| Brisbane, Australia         |       | Manufacturing                        |       | 46,000                |       | Leased                               |       |
| Osaka, Japan                |       | Sales/Distribution                   |       | 16,000                |       | Leased                               |       |
| Inchon, Korea               |       | Manufacturing                        |       | 12,000                |       | Owned                                |       |
| Auckland, New Zealand       |       | Sales/Distribution                   |       | 9,000                 |       | Leased                               |       |
| Johannesburg, South  Africa |       | Sales/Distribution                   |       | 9,000                 |       | Leased                               |       |
| **CHINA**                   |       |                                 |       |                  |       |                                 |       |
| Xiamen, China               |       | Manufacturing                        |       | 72,000                |       | Leased                               |       |
| Hebei, China                |       | Manufacturing                        |       | 65,000                |       | Leased                               |       |
| Xiamen, China               |       | Manufacturing                        | (1)        | 78,000                |       | Leased                               |       |
| Hebei, China                |       | Manufacturing                        | (1)        | 88,000                |       | Leased                               |       |

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(1)          Facility is underconstruction and should be operational in fiscal 2008.

9

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**Item 3.**                        LegalProceedings

Neither Cascade nor any of our subsidiaries areinvolved in any material pending legal proceedings other than litigationrelated to environmental matters discussed below. We are insured againstproduct liability, personal injury and property damage claims, which mayoccasionally arise.

On April 9, 2007, weentered into a settlement agreement with Employers Reinsurance Corporation withrespect to litigation to recover various expenses incurred in connection withenvironmental and related proceedings. The recovery from the settlement, whichis expected to approximate $15.5 million, net of expenses, will berecorded in our consolidated financial statements for the first quarter offiscal 2008. This concludes all litigation against our insurance companies withregards to environmental matters.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders

None.

**Officers of theRegistrant**

**RobertC. Warren, Jr.—Chief Executive Officer and President(1)—****Mr.** Warren, 58, hasserved as President and Chief Executive Officer of Cascade since 1996. He wasPresident and Chief Operating Officer from 1993 until 1996 and was formerlyVice President—Marketing. Mr. Warren joined Cascade in 1972.

**GregoryS. Anderson—Senior Vice President—Human Resources(1)—****Mr.** Anderson, 58,has served in his current position since 2002. He joined Cascade in 1984, andhas served as Vice President—Human Resources since 1991.

**RichardS. Anderson—Senior Vice President and Chief Financial Officer(1)—****Mr.** Anderson, 59,has served as Chief Financial Officer since 2001. Mr. Anderson has beenemployed by Cascade since 1972 and held several positions including hisappointments as Vice President—Material Handling Product Group in 1996 andSenior Vice President—International in 1999.

**TerryH. Cathey—Senior Vice President and Chief Operating Officer(1)—****Mr.** Cathey, 59, hasserved as Chief Operating Officer since 2000. He has been employed by Cascadesince 1973 and has held several positions, including his appointments as VicePresident—Material Handling Operations in 1996 and Vice President—Manufacturingin 1993.

**HerreY. Hoekstra, Vice President and Managing Director, Europe(1)—****Mr.** Hoekstra, 45,joined Cascade in 2005. Prior to joining Cascade, Mr. Hoekstra heldvarious management positions with Royal Ten Cate, REMU and Royal Dutch Shell,in The Netherlands.

**MichaelE. Kern, Vice President—Sales and Marketing(1)—****Mr.** Kern, 60, hasserved as Vice President—Sales and Marketing since 2003. He has been employedby Cascade since 1966 and has held several positions, including hisappointments as Director of Dealer Marketing and Sales in 2001 and AftermarketSales Manager in 1999.

**KevinB. Kreiter, Vice President—Engineering(1)—****Mr.** Kreiter, 53, hasserved in his current position since 2006. He has been employed by Cascadesince 1979 and has held several positions within the engineering group.

**JeffreyK. Nickoloff, Vice President—Corporate Manufacturing(1)—****Mr.** Nickoloff, 51,has served in his current position since 2002. He has held several positionswith Cascade, including his appointments as Director of North AmericanManufacturing in 2000 and Plant Manager in 1993. Mr. Nickoloff joinedCascade in 1979.

10

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**JosephG. Pointer, Vice President—Finance(1)—****Mr.** Pointer, 46, hasserved as Vice President—Finance since 2000. Prior to joining Cascade in 2000, Mr. Pointerwas a partner at PricewaterhouseCoopers LLP in Portland, Oregon.

**JohnA. Cushing—Treasurer—****Mr.** Cushing, 46, has served asTreasurer since 2001. He previously was Assistant Treasurer from 1999 until2001. Prior to joining Cascade in 1999, Mr. Cushing was AssistantTreasurer for Fred Meyer, Inc., a retail company in Portland, Oregon.

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(1)          Theseindividuals are considered executive officers of Cascade Corporation.

11

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**PART II**

**Item 5.**                        Marketfor Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities

As of March 15, 2007,there were 181 shareholders of record of Cascade’s common stock includingblocks of shares held by various depositories. It is our belief that when theshares held by the depositories are attributed to the beneficial owners, thetotal exceeds 2,000.

**Performance Graph**

Thefollowing graph compares the annual percentage change in the cumulativeshareholder return on our common stock with the cumulative total return of theRussell 2000 Index and an industry group of peer companies, in each caseassuming investment of $100 on January 31, 2002, and reinvestment ofdividends. The stock price performance shown in the graph below is notnecessarily indicative of future stock price performance. Notwithstandinganything to the contrary set forth in any of our filings under the SecuritiesAct of 1933 or the Securities Exchange Act of 1934, the stock performance graphshall not be incorporated by reference into any such filings and shall nototherwise be deemed filed under such acts.

**COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN***

**AmongCascade Corporation, The Russell 2000 IndexAnd A Peer Group**

****

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*                    $100 investedon 1/31/02 in stock or index—including reinvestment of dividends. Fiscal yearending January 31.

The peer group comprisesthe following companies: Actuant Corporation., Alamo Group Inc., Ampco-PittsburghCorporation, Astec Industries, Inc., Columbus-McKinnon Corporation,Gehl Company, Gulf Island Fabrication, Inc., IDEX Corporation, LindsayManufacturing Company, Nordson Corporation.

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**Market Information**

Thehigh and low sales prices of Cascade’s common stock based on intra-day priceson the New York Stock Exchange for each quarter during the last two fiscalyears were as follows:

| ** **     | ** ** | **Year ended January 31** | ** ** |
|----------------|------------|---------------------------|------------|
| ** **     | ** ** | **2007**                  | ** ** | **2006** | ** ** |
| ** **     | ** ** | **High**                  | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| First quarter  |       | $                         | 53.96      |   | $ | 37.85 |   | $ | 37.95 |   | $ | 30.61 |   |
| Second quarter |       | 42.17                     |       | 35.20 |   | 45.90 |   | 31.00 |   |
| Third quarter  |       | 52.63                     |       | 35.75 |   | 50.58 |   | 39.80 |   |
| Fourth quarter |       | 55.54                     |       | 47.15 |   | 53.80 |   | 46.03 |   |
|                |            |                           |            |  |  |  |  |  |  |  |  |  |  |

 

 

**Common StockRepurchase**

On September 7,2006 we announced that our Board of Directors had authorized a share repurchaseprogram of up to $80 million over a two-year period. The table below summarizesinformation about our purchases of our common shares during the three monthsand year ended January 31, 2007.

| ** **                           | ** ** | ** **                    | ** ** | ** **                   | ** ** | **Total Number of**

**Shares  Purchased as** | ** ** | **Maximum Dollar**

**Value of Shares**

**that May Yet** | ** ** |
|--------------------------------------|------------|-------------------------------|------------|------------------------------|------------|--------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Total Number of** | ** ** | **Average  Price Paid** | ** ** | **Part of Publicly  Announced**                    | ** ** | **be Purchased**

**Under the**                                          | ** ** |
| **Period**                           | ** ** | ** **                    | ** ** | **Shares Purchased**    | ** ** | **Per Share**                                           | ** ** | **Plans or Programs**                                                    | ** ** | **Plans or Programs** | ** ** |
| November 1 -  30, 2006          |       |                          | 136,956    |                         |       |                                                         | $          | 52.23                                                                              |       |   |   | 136,956 |   |   |   | $ | 58,934,000 |   |   |
| December 1 -  31, 2006          |       |                          | 138,488    |                         |       |                                                         | 53.53      |                                                                               |       |   | 138,488 |   |   |   | 51,521,000 |   |   |
| January 1 -  31, 2007           |       |                          | 192,997    |                         |       |                                                         | 53.57      |                                                                               |       |   | 192,997 |   |   |   | 41,182,000 |   |   |
| Quarter ended  January 31, 2007 |       |                          | 468,441    |                         |       |                                                         | $          | 53.17                                                                              |       |   |   | 468,441 |   |   |   |   |   |   |
| Quarter ended  October 31, 2006 |       |                          | 288,678    |                         |       |                                                         | $          | 48.20                                                                              |       |   |   | 288,678 |   |   |   |   |   |   |
| Year ended  January 31, 2007    |       |                          | 757,119    |                         |       |                                                         | $          | 51.27                                                                              |       |   |   | 757,119 |   |   |   |   |   |   |
|                                      |            |                               |            |                              |            |                                                              |            |                                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Common StockDividends**

Thecommon stock dividends declared during each quarter of the last two fiscalyears were as follows:

| ** **     | ** ** | **Year ended** | ** ** |
|----------------|------------|---------------------|------------|
| ** **     | ** ** | **January 31** | ** ** |
| ** **     | ** ** | **2007**            | ** ** | **2006** | ** ** |
| First quarter  |       | $                   | 0.15       |   | $ | 0.12 |   |
| Second quarter |       | 0.15                |       | 0.12 |   |
| Third quarter  |       | 0.15                |       | 0.15 |   |
| Fourth quarter |       | 0.16                |       | 0.15 |   |
| Total          |       | $                   | 0.61       |   | $ | 0.54 |   |

 

**Stock ExchangeListing and Transfer Agent**

Cascade’s stock is traded on the New York StockExchange under the symbol CAE.

Cascade’s registrar andtransfer agent is Mellon Shareholder Services, L.L.C., Shareholder Relations, P.O. Box3315, South Hackensack, N.J., 07606, (800) 522-6645.

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**Item 6.**         SelectedFinancial Data

Thefollowing selected financial data should be read in conjunction with Cascade’sconsolidated financial statements and accompanying notes contained in Item 8 ofthis Form 10-K.

| ** **                                   | ** ** | **Year Ended January 31**                                                      | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                                                                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                   | ** ** | **(In thousands, except per share amounts and employees)** | ** ** |
| **Income  statement data:**                  | ** ** | ** **                                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                    |       | $                                                                                             | 478,850    |   | $ | 450,503 |   | $ | 385,719 |   | $ | 297,756 |   | $ | 258,829 |   |
| Operating income                             |       | $                                                                                             | 68,351     |   | $ | 63,894 |   | $ | 47,777 |   | $ | 32,025 |   | $ | 32,744 |   |
| Net income                                   |       | $                                                                                             | 45,481     |   | $ | 42,051 |   | $ | 28,490 |   | $ | 18,506 |   | $ | 17,707 |   |
| **Cash  flow data:**                         | ** ** | ** **                                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash flows from  operating activities        |       | $                                                                                             | 57,109     |   | $ | 50,425 |   | $ | 37,808 |   | $ | 26,241 |   | $ | 23,941 |   |
| Cash flows from  investing activities        |       | $                                                                                             | (33,582    | ) | $ | (31,723 | ) | $ | (14,857 | ) | $ | (19,612 | ) | $ | (7,718 | ) |
| Cash flows from  financing activities        |       | $                                                                                             | (22,153    | ) | $ | (13,191 | ) | $ | (16,892 | ) | $ | (14,715 | ) | $ | (18,056 | ) |
| **Stock  information:**                      | ** ** | ** **                                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic earnings  per share                    |       | $                                                                                             | 3.64       |   | $ | 3.40 |   | $ | 2.34 |   | $ | 1.55 |   | $ | 1.55 |   |
| Diluted earnings  per share                  |       | $                                                                                             | 3.48       |   | $ | 3.27 |   | $ | 2.24 |   | $ | 1.49 |   | $ | 1.45 |   |
| Book value per  common share(1)              |       | $                                                                                             | 22.51      |   | $ | 20.69 |   | $ | 17.82 |   | $ | 15.18 |   | $ | 12.70 |   |
| Dividends  declared                          |       | $                                                                                             | 0.61       |   | $ | 0.54 |   | $ | 0.45 |   | $ | 0.41 |   | $ | 0.10 |   |
| **Balance  sheet information:**              | ** ** | ** **                                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and  marketable securities              |       | $                                                                                             | 36,593     |   | $ | 58,497 |   | $ | 31,985 |   | $ | 31,586 |   | $ | 29,501 |   |
| Working capital(2)                           |       | $                                                                                             | 113,130    |   | $ | 124,962 |   | $ | 94,154 |   | $ | 81,720 |   | $ | 71,201 |   |
| Property, plant  and equipment, net          |       | $                                                                                             | 84,151     |   | $ | 75,374 |   | $ | 82,027 |   | $ | 75,244 |   | $ | 65,863 |   |
| Total assets                                 |       | $                                                                                             | 397,432    |   | $ | 361,283 |   | $ | 328,092 |   | $ | 292,819 |   | $ | 262,317 |   |
| Total debt(3)                                |       | $                                                                                             | 51,119     |   | $ | 29,922 |   | $ | 40,564 |   | $ | 53,934 |   | $ | 63,851 |   |
| Shareholders’  equity                   |       | $                                                                                             | 271,636    |   | $ | 259,406 |   | $ | 217,883 |   | $ | 183,688 |   | $ | 144,748 |   |
| **Other:**                                   | ** ** | ** **                                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capital  expenditures                        |       | $                                                                                             | 18,078     |   | $ | 10,580 |   | $ | 13,581 |   | $ | 11,403 |   | $ | 10,665 |   |
| Depreciation                                 |       | $                                                                                             | 13,753     |   | $ | 14,562 |   | $ | 13,912 |   | $ | 12,152 |   | $ | 10,532 |   |
| Amortization                                 |       | $                                                                                             | 1,472      |   | $ | 1,443 |   | $ | 658 |   | $ | 512 |   | $ | 261 |   |
| Share-based  compensation expense            |       | $                                                                                             | 4,033      |   | $ | 2,278 |   | $ | 2,492 |   | $ | — |   | $ | — |   |
| Interest expense,  net of interest income    |       | $                                                                                             | 400        |   | $ | 1,762 |   | $ | 3,008 |   | $ | 3,554 |   | $ | 4,228 |   |
| Diluted weighted  average shares outstanding |       | 13,071                                                                                        |       | 12,850 |   | 12,726 |   | 12,409 |   | 12,194 |   |
| Number of employees                          |       | 2,100                                                                                         |       | 1,900 |   | 1,800 |   | 1,700 |   | 1,500 |   |

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(1)          Defined as equitydivided by number of common shares outstanding at year end.

(2)          Defined as currentassets less current liabilities.

(3)          Includes notes payableto banks and current and long-term portion of debt.

 

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**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

The following is adiscussion and analysis of certain significant factors that have affected ourfinancial condition as of January 31, 2007, and the results of operationsand cash flows for the fiscal years ended January 31, 2007, 2006 and 2005.This information should be read in conjunction with our consolidated financialstatements and notes thereto under Item 8, “Financial Statements andSupplementary Data” of this report.

**OVERVIEW**

Our businesses globallymanufacture and distribute material handling load engagement products primarilyfor the lift truck industry and to a lesser extent the construction industry. Weoperate our business in four geographic segments: North America, Europe, AsiaPacific and China. A further discussion of the nature of our business iscontained in Item 1, “Business” of this report.

**RECENT TRENDS ANDDEVELOPMENTS AFFECTING OUR RESULTS**

**Expansion in China**

We have movedforward with a major expansion of our operations in China. The objectives ofthis expansion are to keep pace with the rapidly expanding Chinese lift truckmarket, expand our business in the Asia Pacific region and provide productioncapacity to begin exporting Chinese-made products to other parts of the world. Duringfiscal 2007 we invested $9 million and plan to invest another $5 million by theend of fiscal 2008. Our expansion to date has included the following:

·       Equipmentand production process upgrades at our existing facility in Xiamen—This willallow us to produce a wider selection of products for sale both within Chinaand to the Asia Pacific region. Along with these upgrades we are alsoincreasing our efforts to source more materials and components from withinChina.

·       Constructionof a fork manufacturing facility in Xiamen—Fork products manufactured at thisfacility will be exported to Europe to supplement our existing manufacturingcapabilities in that region. We expect to begin production of forks at thislocation by the second quarter of fiscal 2008.

·       Constructionof a fork manufacturing facility in Hebei—Fork products manufactured at thisfacility and the existing fork facility in Hebei will be sold within China andthe Asia Pacific region. The new facility is expected to begin production bythe second quarter of fiscal 2008.

In addition to the capitalinvestment in China, we are taking other steps to build the infrastructure tosupport the expanded operations. This includes administrative and engineeringstaff and information systems.

**Use of AvailableCash and Liquidity Position**

During fiscal 2007we initiated several steps which impact the utilization of available cash andour current liquidity situation:

·       Duringthe third quarter of fiscal 2007 we began a share repurchase program of up to$80 million. Through March 19, 2007 we have purchased 1,063,000 shares ofcommon stock for $56 million. Total shares purchased through January 31,2007 are disclosed in Item 5, Market for Registrant’s Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities.

·       Theacquisition of the assets of PSM for approximately $40 million was the firststep in our expansion into the construction attachment industry.

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·       Aspreviously discussed, our China expansion has required an investment of $9million in fiscal 2007 and is expected to require an additional $5 million infiscal 2008.

These steps have reducedour overall net cash (cash/investments less long-term debt) in the short-term. However,if cash generated from operations continues at its present level, we willconsider other ways to utilize available cash over the long-term.

**AcquisitionStrategy**

The first step in ourstrategy to expand our North American business into attachments forconstruction vehicles was the acquisition of the assets of PSM in December 2006.We are also currently investigating opportunities to expand the businessthrough additional acquisitions. Given the regional nature of these businesses,we would anticipate these acquisitions would be in areas of the United Statesoutside of the Pacific Northwest. Our long-term plans are to develop thisbusiness in China as well.

**European Business**

After several years ofmarginal or no growth, the overall lift truck industry in Europe was strong infiscal 2007, with shipments increasing 15% over fiscal 2006. Although industrygrowth was strong, our overall financial results in Europe for the year weredisappointing in terms of sales growth and overall profitability. We continueto believe that improving our operational performance and increasing our marketshare in Europe, the world’s largest lift truck market, is our highest priority.We are planning and continuing to evaluate additional changes to our Europeanbusiness. These include efforts to realign our European sales force and expandresources available to focus on the growing Eastern European market, importfork products from China and efforts to focus on purchasing improvements andstreamlining manufacturing operations and administrative functions.

**Global ProductSourcing**

Recent changes in the lifttruck industry in Europe, including the sale of a lift truck division by one ofEurope’s largest lift truck manufacturers and the continued globalization ofbusiness, are affecting the dynamics and business model previously used byglobal lift truck manufacturers. Whereas the previous practice was to sourceproducts locally or regionally, the current trend is to look more towardsglobal sourcing. As previously noted a portion of our expansion in China is toproduce forks for export into the European market. We believe this is the firststep to address what will be a growing trend in the coming years. We believe weare well positioned to take advantage of this trend.

**COMPARISON OFFISCAL 2007 AND FISCAL 2006**

**Executive Summary**

| ** **                  | ** ** | **Year Ended January 31**                         | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------|------------|------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                  | ** ** | **2007**                                                         | ** ** | **2006**   | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                  | ** ** | **(In thousands except  per share amounts)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                   |       | $                                                                | 478,850    |       | $          | 450,503    |       | $ | 28,347 |   |   | 6 | % |   |
| Operating income            |       | $                                                                | 68,351     |       | $          | 63,894     |       | $ | 4,457 |   |   | 7 | % |   |
| Net income                  |       | $                                                                | 45,481     |       | $          | 42,051     |       | $ | 3,430 |   |   | 8 | % |   |
| Diluted earnings per  share |       | $                                                                | 3.48       |       | $          | 3.27       |       | $ | 0.21 |   |   | 6 | % |   |

 

During fiscal 2007 weposted record levels of consolidated net sales, operating income and net income.This reflects the strength of lift truck markets throughout the world, whereshipments were up 12%. Financial results in both North America and China werevery strong. Asia Pacific’s operating income fell short of the prior year. Europehad record net sales but incurred an operating loss.

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**North America**
|                                | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2007**                                 | ** ** | **%**      | ** ** | **2006**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                        | 263,312    |       | 100        | %          | $          | 250,576 |   | 100 | % | $ | 12,736 |   |   | 5 | % |   |
| Cost of goods  sold            |       | 160,502                                  |       | 61         | %          | 152,707    |       | 61 | % | 7,795 |   |   | 5 | % |   |
| Gross profit                   |       | 102,810                                  |       | 39         | %          | 97,869     |       | 39 | % | 4,941 |   |   | 5 | % |   |
| Selling and administrative     |       | 46,015                                   |       | 18         | %          | 44,672     |       | 18 | % | 1,343 |   |   | 3 | % |   |
| Loss on  disposition of assets |       | 16                                       |       |       |       | 4          |       |   |   | 12 |   |   |   |   |   |
| Amortization                   |       | 598                                      |       |       |       | 151        |       |   |   | 447 |   |   |   |   |   |
| Operating income               |       | $                                        | 56,181     |       | 21         | %          | $          | 53,042 |   | 21 | % | $ | 3,139 |   |   | 6 | % |   |

 

The following arefinancial highlights for North America in fiscal 2007 as compared to the prioryear:

·       Highersales are the result of increased volumes of shipments. Foreign currencychanges accounted for less than 1% of the increase.

·       NorthAmerica lift truck industry shipments from 2006 to 2007 increased 4%. We havefound that lift truck industry statistics provide an indication of thedirection of our business activity. However, changes in our net sales do notcorrespond directly to the percentage changes in lift truck industry shipments.We believe we have maintained our overall existing market share in NorthAmerica during fiscal 2007.

·       Grossprofit percentages remained consistent during fiscal 2007 and 2006. We havebeen able to offset the effect of general and material cost increases througheither cost reduction activities or sales price increases.

·       Sellingand administrative costs increased primarily due to additional share-basedcompensation costs.

·       Higher amortization costsin fiscal 2007 relate to amortization of intangible assets related to ouracquisition of assets of PSM in December 2006.

**Europe**
|                                       | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2007**                                 | ** ** | **%**      | ** ** | **2006**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                            | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                        | 137,755    |       | 100        | %          | $          | 132,213 |   | 100 | % | $ | 5,542 |   |   | 4 | % |   |
| Cost of goods  sold                   |       | 115,114                                  |       | 84         | %          | 108,467    |       | 82 | % | 6,647 |   |   | 6 | % |   |
| Gross profit                          |       | 22,641                                   |       | 16         | %          | 23,746     |       | 18 | % | (1,105 | ) |   | (5 | %) |   |
| Selling and administrative            |       | 23,371                                   |       | 17         | %          | 22,033     |       | 17 | % | 1,338 |   |   | 6 | % |   |
| Loss (gain) on  disposition of assets |       | (588                                     | )          |       |       | 441        |       |   |   | (1,029 | ) |   |   |   |   |
| Amortization                          |       | 851                                      |       |       |       | 1,264      |       | 1 | % | (413 | ) |   |   |   |   |
| Operating income (loss)               |       | $                                        | (993       | )          | (1         | %)         | $          | 8 |   |   |   | $ | (1,001 | ) |   |   |   |   |

 

The following arefinancial highlights for Europe in fiscal 2007 as compared to the prior year:

·       Salesincreased 2% due to increased shipment volumes, excluding currency changes. Europeanlift truck industry shipments increased 15% in fiscal 2007. In comparing oursales growth to the current industry statistics, we believe we lost marketshare in Europe in fiscal 2007.

17

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·       Ourgross profit percentage in fiscal 2006 included restructuring costs of $2.0million related to the closure of a manufacturing facility in The Netherlands. Excludingthese costs our fiscal 2006 gross profit percentage was 19%. The decrease inour fiscal 2007 gross profit is due to additional costs, including productioninefficiencies at multiple manufacturing facilities and general cost increases.

·       Excludingcurrency changes, selling and administrative costs increased 2% primarily dueto additional sales and marketing costs. Fiscal 2006 costs also included$415,000 of restructuring costs.

·       Gainon the disposition of assets in fiscal 2007 relates to the sale of amanufacturing facility in The Netherlands.

·       Amortization costsdecreased due to additional amortization of intangible assets in Italy duringfiscal 2006.

**EuropeanInitiatives**

Our performance inEurope continues to fall below our expectations, especially in light of astrong European lift truck market. This being said we still feel our initiatives,which were commenced in the prior year, will over the long-term allow us toachieve improved financial results. We have provided below an overview of theseinitiatives, our progress to date and additional changes planned in theupcoming year:

·       Thedeveloping focus by lift truck manufacturers on global low cost sourcing andour expanded manufacturing capabilities in China will allow us to beginimporting Chinese-made products into Europe in fiscal 2008. This will requireadditional rationalization of our existing European fork production facilitiesand expansion of our distribution capabilities. We believe we are wellpositioned in comparison with other European competitors to meet the demands ofthe currently changing market.

·       Weare continuing with efforts to realign the European sales force and modifyingour marketing strategy. This includes expanding resources into the EasternEuropean market, which includes Poland, Czech Republic and Turkey. In addition,we are expanding the management team to strengthen our capabilities in ourEuropean production operations.

·       We are continuing ourefforts to focus on operational excellence, which includes product quality,on-time deliveries, review of procurement policies and practices anddevelopment of products specific to the European market. This includes theutilization of external consultants as needed.

**Asia Pacific**
|                                | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2007**                                 | ** ** | **%**      | ** ** | **2006**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                        | 48,256     |       | 100        | %          | $          | 45,471 |   | 100 | % | $ | 2,785 |   |   | 6 | % |   |
| Cost of goods  sold            |       | 36,163                                   |       | 75         | %          | 33,077     |       | 73 | % | 3,086 |   |   | 9 | % |   |
| Gross profit                   |       | 12,093                                   |       | 25         | %          | 12,394     |       | 27 | % | (301 | ) |   | (2 | %) |   |
| Selling and administrative     |       | 8,225                                    |       | 17         | %          | 7,803      |       | 17 | % | 422 |   |   | 5 | % |   |
| Gain on  disposition of assets |       | (17                                      | )          |       |       | (65        | )          |   |   | 48 |   |   |   |   |   |
| Amortization                   |       | 19                                       |       |       |       | —     |       |   |   | 19 |   |   |   |   |   |
| Operating income               |       | $                                        | 3,866      |       | 8          | %          | $          | 4,656 |   | 10 | % | $ | (790 | ) |   | (17 | %) |   |

 

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The following arefinancial highlights for Asia Pacific in fiscal 2007 as compared to the prioryear:

·       Stronglift truck markets in Korea and Japan supported our higher sales levels infiscal 2007. Excluding currency changes, net sales increased 7%. Lift truckindustry shipments in Asia Pacific increased 7% in fiscal 2007.

·       Grossprofits were down 2% over the prior year due primarily to higher materialcosts.

·       Selling and administrativecosts increased, excluding currency changes. This increase is due to additionalpersonnel, marketing and employee benefit expenses.

**China**
|                                | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2007**                                 | ** ** | **%**      | ** ** | **2006**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                        | 29,527     |       | 100        | %          | $          | 22,243 |   | 100 | % | $ | 7,284 |   |   | 33 | % |   |
| Cost of goods  sold            |       | 17,091                                   |       | 58         | %          | 13,523     |       | 61 | % | 3,568 |   |   | 26 | % |   |
| Gross profit                   |       | 12,436                                   |       | 42         | %          | 8,720      |       | 39 | % | 3,716 |   |   | 43 | % |   |
| Selling and administrative     |       | 3,098                                    |       | 11         | %          | 2,499      |       | 11 | % | 599 |   |   | 24 | % |   |
| Loss on  disposition of assets |       | 37                                       |       |       |       | 5          |       |   |   | 32 |   |   |   |   |   |
| Amortization                   |       | 4                                        |       |       |       | 28         |       |   |   | (24 | ) |   |   |   |   |
| Operating income               |       | $                                        | 9,297      |       | 31         | %          | $          | 6,188 |   | 28 | % | $ | 3,109 |   |   | 50 | % |   |

 

The following arefinancial highlights for China in fiscal 2007 as compared to the prior year:

·       Netsales increased consistent with the continued growth of the Chinese economy. Lifttruck shipments in China increased 33% in fiscal 2007.

·       Grossprofit percentages increased 3% in fiscal 2007. These increasing margins reflectthe benefits from certain production process improvements implemented in Xiamenin fiscal 2007 and the additional sourcing of certain raw materials andcomponents from within China.

·       Selling and administrativecosts have increased due to additional costs, primarily professional fees andother general costs, to support our expanding operations in China. As apercentage of net sales these costs are consistent with the prior year.

**Non-Operating Items**

Our interest expense in fiscal 2007 decreased 16% incomparison with fiscal 2006. The reduction reflects our scheduled paydown oflong-term debt in November 2006. See “Financial Condition and Liquidity”for additional discussion of Company debt levels and payments. We anticipate anincrease in interest expense as we borrow against our credit facility forvarious initiatives.

Consolidated interest income increased $915,000through increased investing activity and higher interest rates in fiscal 2007.

Our effective tax rate forfiscal 2007 increased to 34% in comparison to 32% in fiscal 2006. This increaseis due to the reduced tax benefits from international financing and thediscontinued special deduction for U.S. export sales, combined with theutilization of previously recorded foreign tax credits.

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**Lift Truck MarketOutlook**

Based on our reviewof industry statistics and data we believe the general lift truck marketoutlook for fiscal 2008 is as follows:

·       TheNorth American market in fiscal 2008 will be at the business levels experiencedin fiscal 2007.

·       Europe’slift truck industry is expected to grow at a modest rate for fiscal 2008.

·       Themarket in Asia Pacific is expected to remain at the current levels through theremainder of fiscal 2008.

·       The market in China isexpected to continue to experience strong growth through the remainder offiscal 2008.

**Fourth Quarter Results (2007/2006)**
|                                     | ** ** | **Three Months Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                          | ** ** | **2007**                                              | ** ** | **%**      | ** ** | **2006**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                          | ** ** | **(In thousands)**                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                           |       | $                                                     | 118,891    |       | 100        | %          | $          | 108,423 |   | 100 | % | $ | 10,468 |   |   | 10 | % |   |
| Cost of goods  sold                 |       | 83,406                                                |       | 70         | %          | 76,577     |       | 71 | % | 6,829 |   |   | 9 | % |   |
| Gross profit                        |       | 35,485                                                |       | 30         | %          | 31,846     |       | 29 | % | 3,639 |   |   | 11 | % |   |
| Selling and administrative expenses |       | 21,130                                                |       | 18         | %          | 20,674     |       | 19 | % | 456 |   |   | 2 | % |   |
| Loss on  disposition of assets      |       | 20                                                    |       | —     |       | 292        |       | — |   | (272 | ) |   | — |   |   |
| Amortization                        |       | 497                                                   |       | —     |       | 248        |       | — |   | 249 |   |   | 100 | % |   |
| Operating income                    |       | 13,838                                                |       | 12         | %          | 10,632     |       | 10 | % | 3,206 |   |   | 30 | % |   |
| Interest expense,  net              |       | 338                                                   |       | —     |       | 161        |       | — |   | 177 |   |   | 110 | % |   |
| Other income, net                   |       | (864                                                  | )          | —     |       | (26        | )          | — |   | (838 | ) |   | — |   |   |
| Income before  taxes                |       | 14,364                                                |       | 12         | %          | 10,497     |       | 10 | % | 3,867 |   |   | 37 | % |   |
| Provision for  taxes                |       | 4,123                                                 |       | 3          | %          | 2,232      |       | 2 | % | 1,891 |   |   | 85 | % |   |
| Net income                          |       | $                                                     | 10,241     |       | 9          | %          | $          | 8,265 |   | 8 | % | $ | 1,976 |   |   | 24 | % |   |
| Diluted earnings  per share         |       | $                                                     | 0.80       |       |       |       | $          | 0.63 |   |   |   |   |   |   |   |   |   |
| Operating income  (loss) by region: |       |                                                  |       |       |       |       |       |   |   |   |   |   |   |   |   |
| North America                       |       | $                                                     | 11,235     |       |       |       | $          | 11,384 |   |   |   | $ | (149 | ) |   | (1 | %) |   |
| Europe                              |       | (1,017                                                | )          |       |       | (2,144     | )          |   |   | 1,127 |   |   | 53 | % |   |
| Asia Pacific                        |       | 1,231                                                 |       |       |       | 445        |       |   |   | 786 |   |   | 177 | % |   |
| China                               |       | 2,389                                                 |       |       |       | 947        |       |   |   | 1,442 |   |   | 152 | % |   |
|                                |       | $                                                     | 13,838     |       |       |       | $          | 10,632 |   |   |   | $ | 3,206 |   |   | 30 | % |   |

 

The following are financialhighlights from the fourth quarter of fiscal 2007:

·       Salesgrowth, excluding currency changes, was 10% in Europe, 13% in Asia Pacific and44% in China. North America’s net sales, excluding $2 million of sales relatedto the PSM acquisition, decreased 2%. Prior year fourth quarter sales in NorthAmerica were very strong. We do not believe the decrease in sales in NorthAmerica is an indication of any loss of market share in the region.

·       Ouroverall gross profit in Europe was consistent with the prior year afterexcluding the restructuring costs from the closure of a facility in TheNetherlands incurred in the prior year.

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·       Sellingand administrative costs decreased 2% after excluding currency changes. Thisdecrease is due to lower consulting and general costs in Europe and lowerpersonnel and warranty costs in North America.

·       Thedecrease in Europe’s operating loss is primarily due to $781,000 of additionalrestructuring costs incurred in fiscal 2006.

·       Increasesin operating income in the Asia Pacific and China regions are a result ofstrong lift truck markets and higher gross profits. The improved resultsreflect the benefits of our China expansion, both in terms of lower productioncosts and the distribution of Chinese-made products to the Asia Pacific region.

·       The effective tax rate inthe fourth quarter of fiscal 2007 was 29% as compared to 21% in the prior year.The current quarter rate reflects the benefit of an income tax refund receivedin China related to the recapitalization of our Chinese subsidiary. The priorquarter rate reflected the release of certain valuation allowances.

**COMPARISON OFFISCAL 2006 AND FISCAL 2005**

**Executive Summary**
|                             | ** ** | **Year Ended January 31**                         | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------|------------|------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                  | ** ** | **2006**                                                         | ** ** | **2005**   | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                  | ** ** | **(In thousands except  per share amounts)** | ** ** | ** ** | ** ** |
| Net sales                   |       | $                                                                | 450,503    |       | $          | 385,719    |       | $ | 64,784 |   |   | 17 | % |   |
| Operating income            |       | $                                                                | 63,894     |       | $          | 47,777     |       | $ | 16,117 |   |   | 34 | % |   |
| Net income                  |       | $                                                                | 42,051     |       | $          | 28,490     |       | $ | 13,561 |   |   | 48 | % |   |
| Diluted earnings per  share |       | $                                                                | 3.27       |       | $          | 2.24       |       | $ | 1.03 |   |   | 46 | % |   |

 

We experienced strongsales growth in all regions in fiscal 2006. Globally forklift truck shipmentswere up 10%. The net sales increase is due to higher sales volumes and the fullyear’s effect of price increases made throughout fiscal 2005. The increase inoperating income is primarily due to higher sales levels as gross profitremained consistent with the prior year. A lower effective tax rate in fiscal2006 contributed to a higher level of net income.

**North America**
|                                | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                                 | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                        | 250,576    |       | 100        | %          | $          | 208,553 |   | 100 | % | $ | 42,023 |   |   | 20 | % |   |
| Cost of goods  sold            |       | 152,707                                  |       | 61         | %          | 128,175    |       | 61 | % | 24,532 |   |   | 19 | % |   |
| Gross profit                   |       | 97,869                                   |       | 39         | %          | 80,378     |       | 39 | % | 17,491 |   |   | 22 | % |   |
| Selling and administrative     |       | 44,672                                   |       | 18         | %          | 43,661     |       | 21 | % | 1,011 |   |   | 2 | % |   |
| Loss on  disposition of assets |       | 4                                        |       |       |       | 70         |       |   |   | (66 | ) |   |   |   |   |
| Amortization                   |       | 151                                      |       |       |       | 145        |       |   |   | 6 |   |   |   |   |   |
| Insurance  litigation recovery |       | —                                   |       |       |       | (1,300     | )          |   |   | 1,300 |   |   |   |   |   |
| Environmental  expense         |       | —                                   |       |       |       | 155        |       |   |   | (155 | ) |   |   |   |   |
| Operating income               |       | $                                        | 53,042     |       | 21         | %          | $          | 37,647 |   | 18 | % | $ | 15,395 |   |   | 41 | % |   |

 

We experienced a net sales increase of $42 million or20% in North America for fiscal 2006. The increase is due to higher volumes ofshipments and the full year’s benefit of price increases made in fiscal 

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2005. Foreign currencyfluctuations between the U.S. and Canadian dollar accounted for 1% of theincrease in net sales. North American lift truck industry shipments from 2005to 2006 increased 11%. We believe we maintained or increased our market sharein North America during fiscal 2006.

Gross profit percentages in North America were 39% forboth fiscal 2006 and 2005. We were essentially able to offset any general costor material price increases with either cost reductions or sales priceincreases. We were affected by higher raw material costs and the sale in theUnited States of certain products manufactured in Canada. Sales of theseproducts are in U.S. dollars but a significant portion of the costs are inCanadian dollars. The value of the U.S. dollar against the Canadian dollardecreased 9% in fiscal 2006.

Selling and administrative costs for fiscal 2006increased 2% or $1.0 million over fiscal 2005. Excluding the effects ofcurrency changes, these costs increased 1% or $491,000, due to miscellaneousgeneral cost increases.

Fiscal 2005 resultsinclude income of $1.3 million related to the settlement of insurancelitigation.

**Europe**
|                                       | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                            | ** ** | **2006**                                 | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                            | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                             |       | $                                        | 132,213    |       | 100        | %          | $          | 118,723 |   | 100 | % | $ | 13,490 |   |   | 11 | % |   |
| Cost of goods  sold                   |       | 108,467                                  |       | 82         | %          | 95,094     |       | 80 | % | 13,373 |   |   | 14 | % |   |
| Gross profit                          |       | 23,746                                   |       | 18         | %          | 23,629     |       | 20 | % | 117 |   |   | 0 | % |   |
| Selling and administrative            |       | 22,033                                   |       | 17         | %          | 23,574     |       | 20 | % | (1,541 | ) |   | (7 | %) |   |
| Loss (gain) on  disposition of assets |       | 441                                      |       |       |       | (71        | )          |   |   | 512 |   |   |   |   |   |
| Amortization                          |       | 1,264                                    |       | 1          | %          | 485        |       | 0 | % | 779 |   |   |   |   |   |
| Operating income (loss)               |       | $                                        | 8          |       |       |       | $          | (359 | ) |   |   | $ | 367 |   |   |   |   |   |

 

Net sales in Europe for fiscal 2006 increased 11% to$132.2 million. Absent changes in foreign currency rates our net salesincreased 13% in fiscal 2006. This increase was primarily the result ofincreased shipments and to a lesser extent sales price increases. Our sales inEurope for fiscal 2006 benefited from consistent demand in the lift truckmarket and additional production capacity from acquisitions, in particular fromthe purchase of a major German competitor in late fiscal 2005. European lifttruck shipments in fiscal 2006 increased 3% over fiscal 2005.

The gross profit percentage in Europe fell from 20% infiscal 2005 to 18% in fiscal 2006. The decrease is due primarily to $2.0million of costs related to the closure of a manufacturing facility in TheNetherlands as discussed below. The remainder of the decrease is due toadditional maintenance and temporary labor costs in Germany.

During the third quarter of fiscal 2006, we closed ourmanufacturing facility in Hoorn, The Netherlands. At January 31, 2006 allproduction operations in Hoorn were integrated into other manufacturingfacilities in Almere, The Netherlands and Verona, Italy. This closure allowedus to eliminate excess capacity for attachment products. The total direct costsfor the plant closure of $2.0 million consisted of $1.0 million ofemployee termination costs and $1.0 million of costs to move productionequipment. These costs are recorded in cost of goods sold. The liabilityrecorded on the January 31, 2006 consolidated balance sheet related to theplant closure is not material. The consolidated balance sheet at January 31,2006 includes current assets of $730,000 which represent property and equipmentheld for sale from the closure of the Hoorn facility.

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European selling and administrative costs decreased 7%in fiscal 2006. Foreign currency fluctuations made up 1% of the decrease. Thedecrease is due to several factors, including lower warranty costs, reducedspending on information technology consulting and other general cost reductions.Fiscal 2006 costs also include $415,000 of costs related to employeeterminations and closure of a German sales office.

Amortization costsincreased in fiscal 2006 due to additional amortization of intangible assets inItaly.

**Asia Pacific**
|                                | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                                 | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                        | 45,471     |       | 100        | %          | $          | 39,095 |   | 100 | % | $ | 6,376 |   |   | 16 | % |   |
| Cost of goods  sold            |       | 33,077                                   |       | 73         | %          | 27,900     |       | 71 | % | 5,177 |   |   | 19 | % |   |
| Gross profit                   |       | 12,394                                   |       | 27         | %          | 11,195     |       | 29 | % | 1,199 |   |   | 11 | % |   |
| Selling and administrative     |       | 7,803                                    |       | 17         | %          | 6,813      |       | 18 | % | 990 |   |   | 15 | % |   |
| Gain on  disposition of assets |       | (65                                      | )          |       |       | (2         | )          |   |   | (63 | ) |   |   |   |   |
| Operating income               |       | $                                        | 4,656      |       | 10         | %          | $          | 4,384 |   | 11 | % | $ | 272 |   |   | 6 | % |   |

 

Asia Pacific net sales grew 16% to $45.5 million infiscal 2006. Excluding currency changes, net sales increased 14%. The increaseis due primarily to higher sales in Japan and Australia. Lift truck shipmentsin Asia Pacific increased 10% in fiscal 2006 over fiscal 2005.

The gross profit percentage dropped from 29% in fiscal2005 to 27% in fiscal 2006. The decrease is due primarily to lower margins inJapan resulting from higher material costs and a change in product mix.

Selling and administrativecosts in Asia Pacific for fiscal 2006 increased 15% over fiscal 2005. Excludingthe effect of foreign currency changes, the increase was 13% from fiscal 2005. Theincrease is due to additional bad debt expenses, employee benefit costs andother general cost increases.

**China**
|                                | ** ** | **Year Ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                                 | ** ** | **%**      | ** ** | **2005**   | ** ** | **%** | ** ** | **Change** | ** ** | **Change %** | ** ** |
| ** **                     | ** ** | **(In thousands)**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                      |       | $                                        | 22,243     |       | 100        | %          | $          | 19,348 |   | 100 | % | $ | 2,895 |   |   | 15 | % |   |
| Cost of goods  sold            |       | 13,523                                   |       | 61         | %          | 11,368     |       | 59 | % | 2,155 |   |   | 19 | % |   |
| Gross profit                   |       | 8,720                                    |       | 39         | %          | 7,980      |       | 41 | % | 740 |   |   | 9 | % |   |
| Selling and administrative     |       | 2,499                                    |       | 11         | %          | 1,841      |       | 10 | % | 658 |   |   | 36 | % |   |
| Loss on  disposition of assets |       | 5                                        |       |       |       | 6          |       |   |   | (1 | ) |   |   |   |   |
| Amortization                   |       | 28                                       |       |       |       | 28         |       |   |   | — |   |   |   |   |   |
| Operating income               |       | $                                        | 6,188      |       | 28         | %          | $          | 6,105 |   | 31 | % | $ | 83 |   |   | 1 | % |   |

 

Net sales in China increased 15% to $22.2 million infiscal 2006. Our net sales growth is consistent with the expansion of theChinese economy. Lift truck shipments in China increased 11% in fiscal 2006.

Our gross profit percentage in China decreased to 39%in fiscal 2006. We are seeing more competition in our efforts to maintain andexpand our market share in China. We also had a higher percentage of OEMproduct sales in fiscal 2006, which have lower gross profits.

As a part of our overall capital expansion plan inChina, we are currently taking steps to upgrade equipment and further developour manufacturing processes at our facility in Xiamen, China.

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Selling and administrativecosts in China have increased 36% in fiscal 2006. These increases are due toadditional employee benefit costs, professional fees and bad debt expenses.

**Non-Operating Items**

Our interest expense in fiscal 2006 decreased 23% incomparison with fiscal 2005. The reduction reflects lower debt levels due toour scheduled paydown of long-term debt.

Consolidated interest income increased $417,000through increased investing activity in fiscal 2006.

Our effective tax rate for fiscal 2006 decreased to32% in comparison to 37% in fiscal 2005. This decrease was due to the releaseof valuation allowances against certain foreign subsidiary capital losses andaccruals, as well as higher levels of pre-tax income in lower tax jurisdictionsof foreign entities. These benefits were reduced by the recording of additionalvaluation allowances against certain foreign subsidiary net operating losses.

**CASH FLOWS**

The statements of cashflows reflect the changes in cash and cash equivalents for the three yearsended January 31, 2007 by classifying transactions into three majorcategories of activities: operating, investing and financing.

**Operating**

Our main source of liquidity is cash generated fromoperating activities. This consists of net income adjusted for noncashoperating items such as depreciation and amortization, share-basedcompensation, gains and losses on disposition of assets and deferred incometaxes, as well as changes in operating assets and liabilities.

Net cash provided by operating activities was $57.1million in fiscal 2007 as compared to $50.4 million in fiscal 2006. Theincrease in fiscal 2007 was due to higher levels of net income and share-basedcompensation and a decrease in inventory, excluding the impact of foreigncurrency. These changes were offset by an increase in accounts receivable andprepaid expenses and a decrease in accounts payable and accrued expenses.

Our net cash provided byoperating activities increased to $50.4 million in fiscal 2006 from $37.8 millionin fiscal 2005. The increase in fiscal 2006 was due to higher levels of netincome and depreciation and amortization.

**Investing**

Theprincipal recurring investing activities are capital expenditures. Theseexpenditures are primarily for equipment and tooling related to productimprovements, more efficient production methods and replacement for normal wearand tear. Capital expenditures by geographic segment were as follows (inthousands):

| ** **    | ** ** | **Year ended January 31** | ** ** |
|---------------|------------|------------------------------------------|------------|
| ** **    | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| North America |       | $                                        | 6,174      |   | $ | 5,923 |   | $ | 8,101 |   |
| Europe        |       | 2,469                                    |       | 3,189 |   | 4,640 |   |
| Asia Pacific  |       | 481                                      |       | 336 |   | 301 |   |
| China         |       | 8,954                                    |       | 1,132 |   | 539 |   |
|          |       | $                                        | 18,078     |   | $ | 10,580 |   | $ | 13,581 |   |

 

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China’s capital expenditures for fiscal 2007 includecosts related to the construction of two new manufacturing facilities. Thesefacilities are expected to be operational by the second quarter of fiscal 2008.We expect to make additional investments in China of up to $5 million relatedto the expanded operations.

We believe the level of capital expenditures issufficient to meet operational requirements. We expect capital expenditures infiscal 2008, including capital expenditures in China, to be approximately $20 million.

We held marketable securities of $23 million at January 31,2006. We held no marketable securities at January 31, 2007. Thesesecurities consisted of auction rate and variable rate demand notes issued byvarious state agencies throughout the United States. We classified thesesecurities as available-for-sale securities. These securities were insuredeither through third party agencies, reinsured through the U.S. federalgovernment or secured by a letter of credit from a bank. There were no realizedor unrealized gains or losses related to our marketable securities during thefiscal years ended January 31, 2007, 2006 and 2005. The securities held atJanuary 31, 2006 were long-term instruments maturing through 2039;however, the interest rates and maturities were reset approximately everymonth, at which time we could sell the securities. Accordingly, we classified thesecurities as short-term in the consolidated balance sheet. Interest rates onthe securities ranged from 3.0% to 4.3% per annum.

During fiscal 2007, we purchased the assets of PSM, amanufacturer of construction attachments located in Woodinville, Washington. Thetotal purchase price for the assets was approximately $40.3 million, netof assumed liabilities.

During fiscal 2005, we completed the acquisition ofthe assets of Falkenroth Foerdertechnik, GmbH in Schalksmuhle, Germany. Theaggregate purchase price paid in cash for Falkenroth, net of assumedliabilities, was $6.2 million.

Proceeds from the sale ofsecurities received as a reversion from a pension plan terminated in 1997 were$1.0 million during fiscal 2005.

**Financing**

We continue to make our annual $12.5 million seniornotes payment, with the final payment to be made during the fourth quarter offiscal 2008. To fund various initiatives, we entered into a $125 million creditagreement during the fourth quarter of fiscal 2007. Net borrowings against thisline of credit was $34 million as of January 31, 2007.

During the third quarter of fiscal 2007, we started aprogram to repurchase common stock of up to $80 million over a two-year period.As of January 31, 2007 we repurchased 757,000 shares for $36.5 million,net of $2.3 million recorded as a liability on our consolidated balance sheet.

We declared dividends of $0.61, $0.54 and $0.45 pershare in fiscal 2007, 2006, and 2005, respectively. Cash paid for dividends was$7.6 million, $6.7 million, and $5.5 million in fiscal 2007, 2006 and 2005,respectively.

The issuance of commonstock related to the exercise of share-based awards generated $3.4 million,$2.8 million and $1.6 million of cash in fiscal 2007, 2006 and 2005,respectively.

**FINANCIAL CONDITIONAND LIQUIDITY**

Working capital, defined as current assets lesscurrent liabilities at January 31, 2007 was $113.1 million as compared to$125.0 million of working capital at January 31, 2006. Our current ratio,defined as current assets divided by current liabilities, at January 31,2007 was 2.6 to 1 in comparison to 2.9 to 1 at January 31, 2006.

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Total outstanding debt, including notes payable tobanks, at January 31, 2007 was $51.1 million in comparison with $29.9million at January 31, 2006. Our debt agreements contain covenantsrelating to net worth and leverage ratios. We are in compliance with debtcovenants at January 31, 2007. Borrowing arrangements currently in placewith commercial banks provide available lines of credit totaling $125 million.As of January 31, 2007, we had outstanding borrowings of $34 million, withan additional $3.2 million committed through the issuance of letters ofcredit. Average interest rates on notes payable to banks were 4.9% at January 31,2007 and 3.0% at January 31, 2006.

We believe our cash andcash equivalents, existing credit facilities and cash flows from operationswill be sufficient to satisfy our expected working capital, capital expenditureand debt retirement requirements for fiscal 2008.

**OTHER MATTERS**

As of January 31, 2007, we maintain definedbenefit pension plans in England and France covering certain employees. Wecalculate the net periodic pension costs related to our defined benefit planson an annual basis. We have recorded a minimum pension liability, net of tax,of $1.5 million at January 31, 2007 to reflect the extent our pensionliability exceeds the fair value of plan assets. The unrecognized loss for alldefined benefit plans of $2.2 million at January 31, 2007 will continue tobe recognized over the remaining service period of the employees. The combinedaccumulated pension obligation and unfunded benefit obligation for our definedbenefit plans at January 31, 2007 is $9.8 million and $2.2 million,respectively. We have recorded the unfunded benefit obligation, the minimumpension liability, as a liability and reduction in shareholders’ equity on theconsolidated balance sheet at January 31, 2007.

We maintain a postretirement health care benefit planin the United States consisting of health care coverage for approximately 180eligible retirees and qualifying dependents. Another 117 current employees, allover 52 years of age, will be eligible to participate upon retirement. Noadditional employees will be eligible to participate in the plan. The postretirementplan is currently unfunded with an accumulated postretirement benefitobligation of $7.5 million at January 31, 2007. During fiscal 2007 weadopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans—an amendment of FASB Statements No. 87, 88,106 and 132 (R)” that required us to record a minimum postretirement liability,net of tax, of $657,000 at January 31, 2007. See “Recent AccountingPronouncements” for additional information. We have recorded the unfundedbenefit obligation as a liability and the minimum postretirement liability as areduction in shareholders’ equity on the consolidated balance sheet at January 31,2007. During fiscal 2007 our cost for the plan increased due to increasinghealth care costs, however the January 31, 2007 benefit obligationdecreased compared to January 31, 2006 due to an increase to the discountrate and a reduction in the number of participants covered under the plan. Theactual increases in health care costs in recent years have been in excess ofour assumed trend rates. We have implemented significant increases in the levelof contributions required from eligible retirees and qualifying dependents tomitigate the overall cost of the plan. In addition, recent changes in Medicarelaws have reduced overall plan costs. Due to the continued trend of increasinghealth care costs the overall cost of the plan may continue to rise in futureyears. We will continue to investigate various options with this plan and ourdefined benefit plans to mitigate future cost increases. We currently have no plans to fund our postretirement plan.

We are currently engaged in ongoing environmentalremediation efforts at both of our Fairview, Oregon and Springfield, Ohiomanufacturing facilities. Current estimates provide for some level ofremediation activities in Fairview through 2019 and Springfield through 2013. Costsof certain remediation activities at the Fairview facility are shared with TheBoeing Company, with Cascade paying 70% of actual remediation costs. Duringfiscal 2007, the environmental liability decreased due to ongoing payments atboth the Fairview and Springfield sites. No other adjustments to the liabilitywere deemed necessary. The liability for all ongoing remediation efforts is$6.9 million and $7.9 million at January 31, 2007 and 2006, 

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respectively. The accruedenvironmental expenses recorded as a current liability of $1.0 million on theconsolidated balance sheet at January 31, 2007 represent our estimatedcash expenditure for ongoing remediation activities for the fiscal year ending January 31,2008.

Thefollowing summarizes our contractual obligations and commitments as of January 31,2007:

| ** **                              | ** ** | **Payment due by period** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|
| ** **                              | ** ** | ** **                               | ** ** | **Less than** | ** ** | **2-3** | ** ** | **4-5** | ** ** | **Greater than** | ** ** |
| ** **                              | ** ** | **Total**                                | ** ** | **1 year** | ** ** | **years** | ** ** | **years** | ** ** | **5 years** | ** ** |
| ** **                              | ** ** | **(In thousands)**                  | ** ** |
| Notes payable to  banks                 |       | $                                        | 4,546      |   |   | $ | 4,546 |   |   | $ | — |   | $ | — |   | $ | — |   |
| Long-term debt                          |       | 46,573                                   |       |   | 12,573 |   |   | — |   | 34,000 |   | — |   |
| Estimated  interest payments            |       | 11,137                                   |       |   | 2,897 |   |   | 4,120 |   | 4,120 |   | — |   |
| Operating leases                        |       | 9,030                                    |       |   | 2,887 |   |   | 4,289 |   | 1,854 |   | — |   |
| Defined benefit  pension obligations(1) |       | 9,899                                    |       |   | 629 |   |   | 1,247 |   | 952 |   | 7,071 |   |
| Postretirement  benefit obligation(2)   |       | —                                   |       |   | — |   |   | — |   | — |   | — |   |
| Total                                   |       | $                                        | 81,185     |   |   | $ | 23,532 |   |   | $ | 9,656 |   | $ | 40,926 |   | $ | 7,071 |   |

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(1)          Represents committed andcurrent minimum funding requirements for all plans. The total payments due inthe future may vary from these estimates based on actual returns on planassets, changes in assumptions, plan modifications and actuarial gains andlosses. See additional discussion of these key assumptions and estimates in “CriticalAccounting Policies and Estimates” below and Note 8 to Consolidated FinancialStatements (Item 8).

(2)          Our postretirementbenefit obligation related to healthcare coverage for certain retired employeesis funded on a pay-as-you-go basis. Payments under the plan are not includedherein. See “Critical Accounting Policies and Estimates” below and Note 8 toConsolidated Financial Statements (Item 8).

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**CRITICAL ACCOUNTINGPOLICIES AND ESTIMATES**

Management’s discussionand analysis of our financial condition and results of operations is based onour consolidated financial statements, which have been prepared in accordancewith generally accepted accounting principles in the United States of America(GAAP). The preparation of these financial statements requires us to makeestimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses and the disclosure of contingent assets andliabilities. We evaluate our estimates and judgments on an on-going basis,including those related to uncollectible receivables, inventories, impairmentof goodwill, warranty obligations, environmental liabilities, benefit plans,share-based compensation and deferred taxes. We base our estimates on ourhistorical experience and various other assumptions that are believed to bereasonable under the circumstances. Actual results may differ from theseestimates under different assumptions or conditions. We believe the followingcritical accounting policies reflect our more significant judgments andestimates in the preparation of our consolidated financial statements.

***Allowances for Doubtful Accounts***

We maintain allowances fordoubtful accounts for estimated losses on accounts receivable resulting fromthe inability of customers to make required payments. Such allowances are basedon an ongoing review of customer payments against terms and a review ofcustomer financial statements and financial information. If the financialcondition of customers were to deteriorate, resulting in an impairment of theirability to make payments, additional allowances may be required.

***Inventory Reserves***

Inventories are stated atthe lower of cost or market. We maintain reserves to write down our inventoryfor estimated obsolescence or unmarketable inventory equal to the differencebetween the cost of inventory and the estimated market value, less costs tosell, based upon assumptions about future demand and market conditions. Ifactual future demand or market conditions are less favorable than thoseprojected by management, additional inventory write-downs may be required,which would result in cost of goods sold in the consolidated statements ofincome being greater than expected in the period in which more informationbecomes available.

***Impairment of Goodwill***

We review goodwill for impairment either annually orwhen events or changes in circumstances indicate the carrying value of theassets might exceed their current fair values. The review is performed forreporting units including North America, Europe, PSM and Australia. Certainfactors we consider important which could trigger an impairment review, at aninterim date outside of the annual review, include, but are not limited to,significant underperformance relative to historical or projected futureoperating results, significant changes in the manner of use of the acquiredassets or our overall business and significant industry or economic trends. Theimpairment review is based on a discounted projected cash flow model that usesestimates of future sales, sales growth rates, gross profits, expense andcapital expenditure levels, a discount rate and estimated terminal values todetermine the fair value of the operating entities should an impairment exist. Weuse our weighted average cost of capital (WACC) to discount future cash flowsfor goodwill impairment tests. The WACC is the expected rate of return based onour existing debt and equity capital structure. Changes in these and otherfactors could result in impairments in the carrying value of goodwill, whichwould require a writedown to the asset’s fair value. If actual results are notconsistent with our assumptions and judgments, we could be exposed to amaterial impairment charge.

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We are continuing topursue a number of initiatives in Europe to improve our financial performanceof our European business. Our goodwill impairment test for Europe assumes thefuture operating results will reflect the benefits of our efforts. While theseresults are not inconsistent with our past operating results, they do reflectimprovements over our recent financial results. If we do not realize theseimprovements it could result in an impairment of our goodwill in Europe in thefuture.

***Warranty Obligations***

We offer certainwarranties with the sale of our products, which generally range from six monthsto one year. The warranty obligation is recorded as a liability on the balancesheet and is estimated through historical customer claims, product failurerates, material usage and service delivery costs incurred in correcting aproduct failure. Changes in these factors and statutory requirements forproduct warranties in markets in which we sell our products may require anadjustment to the recorded warranty obligations.

***Environmental Liabilities***

We accrue environmentalremediation and litigation costs if it is probable a liability has beenincurred at the financial statement date and the amount can be reasonablyestimated. Our liability for environmental costs, other than for costs ofassessments themselves, are generally determined after the completion ofinvestigations and studies and are based on the estimated cost of remediationactivities we are then required to undertake. The gross liability is based onour best estimate of undiscounted future costs using currently availabletechnology and applying current regulations, as well as our own historicalexperience regarding environmental cleanup costs. The reliability and precisionof the estimates are affected by numerous factors, such as site evaluation andreevaluation of the degree of remediation required, claims by third parties andchanges to environmental laws and regulations. We adjust our liabilities as newremediation requirements are defined, as information becomes availablepermitting reasonable estimates to be made and to reflect new facts.

***Benefit Plans***

We make a number of assumptions with regard to bothfuture financial conditions and future actions by plan participants to calculateon an actuarial basis the amount of income or expense and assets andliabilities recognized in association with our defined benefit andpostretirement benefit plans. These assumptions include the expected return onplan assets, discount rates, expected increases in compensation levels, healthcare cost trend rates and expected rates of retirement and life expectancy forplan participants. We review the assumptions on an annual basis and makechanges to reflect market conditions and the administration of the plans. Whilewe believe the current assumptions are appropriate in the circumstances, actualresults and changes in these assumptions in the future will result inadjustments which could impact the income or expense recognized in future yearsin relation to these plans.

The assumed rate of return on plan assets for ourdefined benefit plans is evaluated on an annual basis. We select the assumedrate of return based on information considering historical returns, our currentand target asset allocation and the expected returns by asset class. We believethis assumption is reasonable given the asset composition and long-termhistoric trends. Our discount rate reflects the rate at which the pensionbenefits could be effectively settled. We increased our discount rateassumption to determine the January 31, 2007 liability to 5.2% from 4.7%at January 31, 2006 due to the market increases in interest rates duringthe year. Our most significant defined benefit plan is in England so interestrates on high-quality corporate bonds in that market have more influence on theoverall discount rate.

Ourdiscount rate, used to determine the liability for our postretirement plan,increased to 5.75% at January 31, 2007 from the discount rate of 5.5% at January 31,2006. We determine our discount rate using a “yield curve expected benefitpayment” methodology. This methodology uses individual curve rates to 

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discount each future years’ expected plan benefitpayments. We select our health care cost trend rates based on recent planexperience and expectations about future increases in plan costs. We assumehealth care costs in fiscal 2008 will increase by 10% and future increases willdecline by 1% per year until 4.5% is reached in 2013. The following presentsthe sensitivity of the key postretirement plan assumptions (in thousands):

| ** **                                                                              | ** ** | **Increase** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------|------------|
| The following  presents the sensitivity of a 1% decrease in the discount rate:          | ** ** |         | ** ** | ** ** |   |
| Effect on net periodic benefit cost                                                     |       |         | $          | 156 | ** ** |   |
| Effect on postretirement benefit obligation                                             |       |         | $          | 924 | ** ** |   |
| The following  presents the sensitivity of a 1% increase in the health care cost trend: |       |         |       | ** ** |   |
| Effect on net periodic benefit cost                                                     |       |         | $          | 235 | ** ** |   |
| Effect on  postretirement benefit obligation                                            |       |         | $          | 905 | ** ** |   |

 

***Share-based Compensation***

Effective May 1,2005, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123(revised 2004), “Share-Based Payment” (123R). SFAS 123R addresses theaccounting for stock-based compensation in which we receive employee servicesin exchange for our equity instruments. Stock-based compensation is calculatedusing a fair value method. Under the fair value recognition provisions of SFAS123R, share-based compensation cost is measured at the grant date based on thevalue of the award and is recognized as expense over the service period theaward is expected to vest. Determining the fair value of share-based awards atthe grant date requires judgment, including estimating the expected term ofstock options, the expected volatility of our common stock and expecteddividends. In addition, judgment is also required in estimating the amount ofshare-based awards that are expected to be forfeited. We consider many factorswhen estimating expected forfeitures, including types of awards, awardrecipient class and historical experience. Significant changes in theassumptions for future awards and actual forfeiture rates could materiallyimpact share-based compensation expense and our results of operations. Subsequentchanges in forfeiture rates will be recorded as a cumulative adjustment in theperiod estimates are revised. See Notes 2 and 9 to the Consolidated FinancialStatements (Item 8) for further discussion of our share-based awards and therelated accounting treatment.

***Deferred Taxes***

Our provision for income taxes and the determinationof the resulting deferred tax assets and liabilities involves a significantamount of management judgment. We are subject to taxation from federal, stateand international jurisdictions. The taxes paid to these jurisdictions aresubject to audit, although to date the results of any tax audits have beenminor.

Judgment is also appliedin determining whether deferred tax assets will be realized in full or in part.We record a valuation allowance to reduce our deferred tax assets when it ismore likely than not that all or some portion of specific deferred tax assets,such as foreign tax credit carryovers or net operating loss carryforwards, willnot be realized. We have recorded on our consolidated balance sheets avaluation allowance against various deferred tax assets. We consider futuretaxable income and ongoing prudent and feasible tax planning strategies inassessing the need for the valuation allowance. In the event we were todetermine that we would not be able to realize all or part of our net deferredtax assets in the future, an adjustment to the deferred tax assets would becharged against income in the period such determination was made. Likewise,should we determine that we would be able to realize our deferred tax assets inthe future in excess of our net recorded amount, an adjustment to the deferredtax assets would increase income in the period such determination was made. Wecontinually evaluate strategies that could allow for the future utilization ofour deferred tax assets.

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**OFF BALANCE SHEETARRANGEMENTS**

At January 31, 2007and 2006, we did not have any relationships with unconsolidated entities orfinancial partnerships, such as entities often referred to as structuredfinance or special purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements or for othercontractually narrow or limited purposes. As such, we are not exposed to anyfinancing, liquidity market or credit risk that could arise if we had engagedin such relationships.

**RECENT ACCOUNTINGPRONOUNCEMENTS**

**SFAS151**—In November 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 151 (SFAS 151), “Inventory Costs,an amendment of ARB No. 43, Chapter 4.” This statement amends theguidance in ARB No. 43, Chapter 4, “Inventory Pricing”, to clarify theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material (spoilage). Paragraph 5 of ARB No. 43, Chapter4, previously stated that “.under some circumstances, items such as idlefacility expense, excessive spoilage, double freight, and re-handling costs maybe so abnormal as to require treatment as current period charges” SFAS 151requires that those items be recognized as current-period charges regardless ofwhether they meet the criterion of “so abnormal.” In addition, this statementrequires that allocation of fixed production overhead to the costs ofconversion be based on the normal capacity of the production facilities. Theprovisions of SFAS 151 were effective for us on February 1, 2006. Theadoption of SFAS 151 did not have a material impact on our financial positionor results of operations.

**SFAS154**—In May 2005, the FASB issued SFAS No. 154(SFAS 154), “Accounting Changes and Error Corrections—a replacement of APBOpinion No. 20 and FASB Statement No. 3.” SFAS 154 changes therequirements for the accounting for and reporting of a change in accountingprinciple. This statement applies to all voluntary changes in accountingprinciples. It also applies to changes required by an accounting pronouncementin the unusual instance that the pronouncement does not include specifictransition provisions. SFAS 154 requires the application of a change inaccounting principle be applied to prior accounting periods presented as ifthat principle had always been used. When a pronouncement includes specifictransition provisions, those provisions should be followed. SFAS 154 iseffective for accounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005. The adoption of SFAS 154 at thebeginning of fiscal 2007 did not have an effect on our consolidated financialstatements.

**FIN48**—In June 2006, the FASB issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes.” Thisinterpretation clarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordance with FASBStatement No. 109, “Accounting for Income Taxes.” FASB Interpretation No. 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. It also provides guidance on de-recognition,classification, interest and penalties, accounting in interim periods,disclosure and transition. We are currently evaluating the impact of FASBInterpretation No. 48 on our financial statements. Application of thisinterpretation is required for our financial statements at the beginning offiscal year ended January 31, 2008.

**SFAS157**—In September 2006, the FASB issued SFAS No. 157(SFAS 157), “Fair Value Measurements.” SFAS 157 provides a common definition offair value, establishes a framework for measuring fair value and expands therelated disclosure requirements. We are currently evaluating the impact of SFAS157 on our financial statements. Application of SFAS 157 is required for ourfinancial statements for the fiscal year beginning February 1, 2008.

**SFAS158**—In September 2006, the FASB issued SFAS No. 158(SFAS 158), “Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans—an amendment of FASB Statements No. 87, 

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88, 106, and 132(R).” Thisstatement requires balance sheet recognition of the overfunded or underfundedstatus of pension and postretirement benefit plans. Under SFAS 158, actuarialgains and losses, prior service costs or credits, and any remaining transitionassets or obligations that have not been recognized under previous accountingstandards must be recognized in other comprehensive income, net of tax effects,until they are amortized as a component of net periodic benefit cost. Inaddition, the measurement date, the date at which plan assets and the benefitobligation are measured, is required to be the company’s fiscal year end.Presently, we use a December 31 measurement date for the postretirementbenefit plan, which will have to change to coincide with our January 31fiscal year-end date. We adopted SFAS 158 for our financial statements for thefiscal year ended January 31, 2007, except for the measurement dateprovision, which is effective for the fiscal year ending January 31, 2009.The impact of adopting SFAS 158 increased the employee benefit liability on ourconsolidated balance sheet by $1.0 million and decreased shareholders’equity by $657,000, net of tax.

**SAB108**—In September 2006, the SEC issued StaffAccounting Bulletin No. 108 (SAB 108) “Considering the Effects of PriorYear Misstatements when Quantifying Misstatements in Current Year FinancialStatements.” SAB 108 provides interpretive guidance on how the effects of thecarryover or reversal of prior year misstatements should be considered inquantifying a current year misstatement. The SEC staff believes thatregistrants should quantify errors using both a balance sheet and incomestatement approach and evaluate whether either approach results in quantifyinga misstatement that, when all relevant quantitative and qualitative factorsconsidered, is material. Application of SAB 108 did not have an impact on ourconsolidated financial statements for the fiscal year ending January 31,2007.

**SFAS 159—**InFebruary 2007, the FASB issued SFAS No. 159 (SFAS 159), “The FairValue Option for Financial Assets and Financial Liabilities—Including anAmendment of FASB Statement No. 115.” SFAS 159 allows companies the choiceto measure many financial instruments and certain other items at fair value.Application of SFAS 159 is required for our financial statements beginning February 1,2008. We are currently reviewing the impact of this pronouncement on ourconsolidated financial statements.

**Item 7A.**                Quantitativeand Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adversechanges in market rates and prices, such as foreign currency exchange rate andinterest rate fluctuations. A significant portion of our net sales aredenominated in currencies from international markets outside the United States.As a result, our operating results could become subject to significantfluctuations based upon changes in the exchange rates of the foreign currenciesin relation to the United States dollar.

Thetable below illustrates the hypothetical increase or decrease in fiscal 2007net sales of a 10% change in the U.S. dollar against foreign currencies whichimpact our operations (in millions):

| Euro                                                           |   | $ | 10.6 |   |
|----------------------------------------------------------------|--------|---|------|--------|
| Chinese yuan                                                   |   | $ | 3.0  |   |
| British pound                                                  |   | $ | 2.8  |   |
| Canadian dollar                                                |   | $ | 2.5  |   |
| Other currencies  (representing 11% of consolidated net sales) |   | $ | 5.2  |   |

 

We enter into foreign currency forward exchangecontracts to offset the impact of currency fluctuations on certainnonfunctional currency assets and liabilities. The principal currencies hedgedare denominated in Japanese yen, Canadian dollars, Euros and British pounds.Our foreign currency forward exchange contracts have terms lasting up to sixmonths, but generally less than one month. We do not enter into derivatives orother financial instruments for trading or speculative purposes. SeeNote 11 to the Consolidated Financial Statements (Item 8).

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A majority of our products are manufactured usingsteel as a primary raw material and steel based components as purchased parts.As such, our cost of goods sold is sensitive to fluctuations in steel prices,either directly through the purchase of steel as raw material or indirectlythrough the purchase of steel based components.

Presuming that the full impact of commodity steelprice increases is reflected in all steel and steel based component purchases,we estimate our gross profit percentage would decrease by approximately 0.3%for each 1.0% increase in commodity steel prices. Based on our statement ofincome for the year ended January 31, 2007, a 1.0% increase in commoditysteel prices would have decreased consolidated gross profit by approximately$1.3 million.

During fiscal 2007, weexperienced some increases in prices for steel and steel components. We havecontinued to move aggressively to offset these increases through a variety ofmeans, including sales price increases, cost reduction activities andalternative sourcing arrangements. In general we were more successful in NorthAmerica, China and Asia Pacific in realizing the full benefits of thesemitigating measures. In Europe the measures have not been as successful,resulting in some erosion of gross profit for certain products. During fiscal2008 we are expecting some additional material price increases and willcontinue to implement mitigating measures where needed.

**Item 8.**                        FinancialStatements and Supplementary Data

**Report ofIndependent Registered Public Accounting Firm**

**To the Board ofDirectors and Shareholders of Cascade Corporation**

We have completedintegrated audits of Cascade Corporation’s consolidated financial statementsand of its internal control over financial reporting as of January 31,2007, in accordance with the standards of the Public Company AccountingOversight Board (United States). Our opinions, based on our audits, arepresented below.

**Consolidated financial statements and financial statementschedule**

In our opinion, theconsolidated financial statements listed in the index appearing under Item 15(a)(1) presentfairly, in all material respects, the financial position of Cascade Corporationand its subsidiaries (the “Company”) at January 31, 2007 and 2006, and theresults of their operations and their cash flows for each of the three years inthe period ended January 31, 2007 in conformity with accounting principlesgenerally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed inthe index appearing under Item 15(a)(2) presents fairly, in all materialrespects, the information set forth therein when read in conjunction with therelated consolidated financial statements. These financial statementsand financial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements and financial statement schedule based on our audits. We conductedour audits of these statements in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit of financialstatements includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

As discussed in Note 2, tothe consolidated financial statements, the Company changed the manner in whichit accounts for share-based compensation in fiscal 2006 and the manner in whichit accounts for defined benefit pension and other post retirement planseffective January 31, 2007.

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**Internal control over financial reporting**

Also, in our opinion,management’s assessment, included in Management’s Report on Internal ControlOver Financial Reporting appearing under Item 9A, that the Company maintainedeffective internal control over financial reporting as of January 31, 2007based on criteria established in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission (“COSO”), is fairly stated, in all material respects, basedon those criteria. Furthermore, in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as of January 31,2007, based on criteria established in *Internal Control—IntegratedFramework* issued by the COSO. The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express opinions on management’s assessmentand on the effectiveness of the Company’s internal control over financialreporting based on our audit. We conducted our audit of internal control overfinancial reporting in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in all materialrespects. An audit of internal control over financial reporting includesobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we consider necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinions.

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financialstatements.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

As described in Management’sReport on Internal Control Over Financial Reporting, management has excludedPacific Services & Manufacturing, Inc. (“PSM”) from itsassessment of internal control over financial reporting as of January 31,2007 because it was acquired by the Company in a purchase business combinationduring fiscal 2007. We have also excluded PSM from our audit of internalcontrol over financial reporting. PSM is a wholly-owned subsidiary whose totalassets and total revenues represent 12% and less than 1%, respectively, of therelated consolidated financial statement amounts as of and for the year ended January 31,2007.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Portland, Oregon

April 13, 2007

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**Cascade CorporationConsolidated Statements of Income**

| ** **                                   | ** ** | **Year Ended January 31**                              | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                   | ** ** | **(In thousands, except per share amounts)** | ** ** |
| Net sales                                    |       | $                                                                     | 478,850    |   | $ | 450,503 |   | $ | 385,719 |   |
| Cost of goods  sold                          |       | 328,870                                                               |       | 307,774 |   | 262,537 |   |
| Gross profit                                 |       | 149,980                                                               |       | 142,729 |   | 123,182 |   |
| Selling and administrative expenses          |       | 80,709                                                                |       | 77,007 |   | 75,889 |   |
| Loss (gain) on  disposition of assets        |       | (552                                                                  | )          | 385 |   | 3 |   |
| Amortization                                 |       | 1,472                                                                 |       | 1,443 |   | 658 |   |
| Insurance  litigation recovery               |       | —                                                                |       | — |   | (1,300 | ) |
| Environmental  expenses                      |       | —                                                                |       | — |   | 155 |   |
| Operating income                             |       | 68,351                                                                |       | 63,894 |   | 47,777 |   |
| Interest expense                             |       | 2,294                                                                 |       | 2,741 |   | 3,570 |   |
| Interest income                              |       | (1,894                                                                | )          | (979 | ) | (562 | ) |
| Other income, net                            |       | (1,304                                                                | )          | (95 | ) | (218 | ) |
| Income before  provision for income taxes    |       | 69,255                                                                |       | 62,227 |   | 44,987 |   |
| Provision for income taxes                   |       | 23,774                                                                |       | 20,176 |   | 16,497 |   |
| Net income                                   |       | $                                                                     | 45,481     |   | $ | 42,051 |   | $ | 28,490 |   |
| Basic earnings per share                     |       | $                                                                     | 3.64       |   | $ | 3.40 |   | $ | 2.34 |   |
| Diluted earnings  per share                  |       | $                                                                     | 3.48       |   | $ | 3.27 |   | $ | 2.24 |   |
| Basic weighted average shares outstanding    |       | 12,505                                                                |       | 12,354 |   | 12,164 |   |
| Diluted weighted average  shares outstanding |       | 13,071                                                                |       | 12,850 |   | 12,726 |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

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**Cascade CorporationConsolidated Balance Sheets**

| ** **                                                                                                    | ** ** | **As of January 31**                               | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                    | ** ** | **2007**                                                          | ** ** | **2006** | ** ** |
| ** **                                                                                                    | ** ** | **(In thousands, except  per share amounts)** | ** ** |
| **ASSETS**                                                                                                    | ** ** | ** **                                                        | ** ** | ** ** | ** ** |
| Current assets:                                                                                               |       |                                                              |       |   |   |
| Cash and cash equivalents                                                                                     |       | $                                                                 | 36,593     |   | $ | 35,493 |   |
| Marketable securities                                                                                         |       | —                                                            |       | 23,004 |   |
| Accounts receivable, less allowance for doubtful accounts  of $1,515 and $1,415                               |       | 74,992                                                            |       | 67,020 |   |
| Inventories                                                                                                   |       | 58,280                                                            |       | 56,996 |   |
| Deferred income taxes                                                                                         |       | 4,481                                                             |       | 3,232 |   |
| Prepaid expenses and other                                                                                    |       | 8,609                                                             |       | 5,373 |   |
| Total current assets                                                                                          |       | 182,955                                                           |       | 191,118 |   |
| Property, plant  and equipment, net                                                                           |       | 84,151                                                            |       | 75,374 |   |
| Goodwill                                                                                                      |       | 99,498                                                            |       | 78,820 |   |
| Deferred income  taxes                                                                                        |       | 11,817                                                            |       | 11,851 |   |
| Intangible  assets, net                                                                                       |       | 17,026                                                            |       | 2,187 |   |
| Other assets                                                                                                  |       | 1,985                                                             |       | 1,933 |   |
| Total assets                                                                                                  |       | $                                                                 | 397,432    |   | $ | 361,283 |   |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                | ** ** | ** **                                                        | ** ** | ** ** | ** ** |
| Current  liabilities:                                                                                         |       |                                                              |       |   |   |
| Notes payable to banks                                                                                        |       | $                                                                 | 4,546      |   | $ | 4,741 |   |
| Current portion of long-term debt                                                                             |       | 12,573                                                            |       | 12,681 |   |
| Accounts payable                                                                                              |       | 26,008                                                            |       | 25,124 |   |
| Accrued payroll and payroll taxes                                                                             |       | 9,391                                                             |       | 8,710 |   |
| Accrued environmental expenses                                                                                |       | 1,024                                                             |       | 984 |   |
| Other accrued expenses                                                                                        |       | 16,283                                                            |       | 13,916 |   |
| Total current liabilities                                                                                     |       | 69,825                                                            |       | 66,156 |   |
| Long-term debt,  net of current portion                                                                       |       | 34,000                                                            |       | 12,500 |   |
| Accrued  environmental expenses                                                                               |       | 5,838                                                             |       | 6,951 |   |
| Deferred income  taxes                                                                                        |       | 2,798                                                             |       | 4,009 |   |
| Employee benefit  obligations                                                                                 |       | 9,719                                                             |       | 9,114 |   |
| Other liabilities                                                                                             |       | 3,616                                                             |       | 3,147 |   |
| Total liabilities                                                                                             |       | 125,796                                                           |       | 101,877 |   |
| Commitments and contingencies (Note 12)                                                                       |       |                                                              |       |   |   |
| Shareholders’ equity:                                                                                    |       |                                                              |       |   |   |
| Common stock, $.50 par value, 20,000 authorized  shares; 12,070 and 12,536 shares issued and outstanding |       | 6,035                                                             |       | 6,268 |   |
| Additional paid-in capital                                                                                    |       | —                                                            |       | 21,590 |   |
| Retained earnings                                                                                             |       | 253,307                                                           |       | 223,867 |   |
| Accumulated other comprehensive income                                                                        |       | 12,294                                                            |       | 7,681 |   |
| Total shareholders’ equity                                                                               |       | 271,636                                                           |       | 259,406 |   |
| Total liabilities  and shareholders’ equity                                                              |       | $                                                                 | 397,432    |   | $ | 361,283 |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

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**Cascade Corporation**

**ConsolidatedStatements of Changes in Shareholders’ Equity(In thousands, except per share amounts)**

| ** **                                                                       | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** ** | **Unamortized  Deferred** | ** ** | **Retained**     | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Annual  Comprehensive** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|---------------------------|------------|------------------|------------|---------------------------------------|------------|---------------------------|------------|
| ** **                                                                       | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**               | ** ** | **Compensation** | ** ** | **Earnings**                          | ** ** | **Income (Loss)**    | ** ** | **Income (Loss)** | ** ** |
| **Balance at January 31,   2004**                                           |       | 12,102                |       |                    | $          | 6,051                     |       |             |       | $                                     | 11,111     |                      |       |   | $ | — |   |   | $ | 165,495 |   |   | $ | 1,031 |   |   |   |   |   |   |
| Net income                                                                       |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | 28,490 |   |   | — |   |   |   | $ | 28,490 |   |   |
| Dividends ($.45 per share)                                                       |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | (5,478 | ) |   | — |   |   |   | — |   |   |
| Common stock issued                                                              |       | 122                   |       |                    | 61         |                      |       |             | 1,555      |                                  |       |                      | —     |   |   | — |   |   | — |   |   |   | — |   |   |
| Tax benefit from exercise of stock options                                       |       | —                |       |                    | —     |                      |       |             | 340        |                                  |       |                      | —     |   |   | — |   |   | — |   |   |   | — |   |   |
| Deferred compensation from stock appreciation rights                             |       | —                |       |                    | —     |                      |       |             | 6,998      |                                  |       |                      | (6,998     | ) |   | — |   |   | — |   |   |   | — |   |   |
| Amortization of deferred compensation                                            |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | 2,492      |   |   | — |   |   | — |   |   |   |   |   |   |
| Translation adjustment                                                           |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | — |   |   | 6,735 |   |   |   | 6,735 |   |   |
| **Balance at January 31,  2005**                                            |       | 12,224                |       |                    | 6,112      |                      |       |             | 20,004     |                                  |       |                      | (4,506     | ) |   | 188,507 |   |   | 7,766 |   |   |   | $ | 35,225 |   |   |
| Net income                                                                       |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | 42,051 |   |   | — |   |   |   | $ | 42,051 |   |   |
| Dividends ($.54 per share)                                                       |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | (6,691 | ) |   | — |   |   |   | — |   |   |
| Common stock issued                                                              |       | 312                   |       |                    | 156        |                      |       |             | 2,631      |                                  |       |                      | —     |   |   | — |   |   | — |   |   |   | — |   |   |
| Tax benefit from exercise of stock options                                       |       | —                |       |                    | —     |                      |       |             | 1,183      |                                  |       |                      | —     |   |   | — |   |   | — |   |   |   | — |   |   |
| Deferred compensation from stock appreciation rights                             |       | —                |       |                    | —     |                      |       |             | (4,734     | )                                     |       |                      | 4,734      |   |   | — |   |   | — |   |   |   | — |   |   |
| Share-based compensation                                                         |       | —                |       |                    | —     |                      |       |             | 2,506      |                                  |       |                      | (228       | ) |   | — |   |   | — |   |   |   | — |   |   |
| Translation adjustment                                                           |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | — |   |   | 592 |   |   |   | 592 |   |   |
| Minimum pension liability adjustment, net of tax  benefit of $393                |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | — |   |   | (677 | ) |   |   | (677 | ) |   |
| **Balance at January 31,  2006**                                            |       | 12,536                |       |                    | 6,268      |                      |       |             | 21,590     |                                  |       |                      | —     |   |   | 223,867 |   |   | 7,681 |   |   |   | $ | 41,966 |   |   |
| Net income                                                                       |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | 45,481 |   |   | — |   |   |   | $ | 45,481 |   |   |
| Dividends ($.61 per share)                                                       |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | (7,603 | ) |   | — |   |   |   | — |   |   |
| Common stock issued                                                              |       | 291                   |       |                    | 145        |                      |       |             | 3,296      |                                  |       |                      | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Tax benefit from exercise of stock options                                       |       | —                |       |                    | —     |                      |       |             | 1,083      |                                  |       |                      | —     |   |   | — |   |   | — |   |   |   | — |   |   |
| Common stock repurchase                                                          |       | (757                  | )          |                    | (378       | )                         |       |             | (30,002    | )                                     |       |                      |       |   |   | (8,438 | ) |   |   |   |   |   | — |   |   |
| Share-based compensation                                                         |       | —                |       |                    | —     |                      |       |             | 4,033      |                                  |       |                      | —     |   |   | — |   |   | — |   |   |   | — |   |   |
| Translation adjustment                                                           |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | — |   |   | 4,008 |   |   |   | 4,008 |   |   |
| Minimum pension/postretirement liability adjustment,  net of tax benefit of $360 |       | —                |       |                    | —     |                      |       |             | —     |                                  |       |                      | —     |   |   | — |   |   | 605 |   |   |   | 605 |   |   |
| **Balance  at January 31,  2007**                                           |       | 12,070                |       |                    | $          | 6,035                     |       |             |       | $                                     | —     |                      |       |   | $ | — |   |   | $ | 253,307 |   |   | $ | 12,294 |   |   |   | $ | 50,094 |   |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

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**Cascade Corporation**

**ConsolidatedStatements of Cash Flows**

| ** **                                                                                     | ** ** | **Year Ended January 31** | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                     | ** ** | **(In thousands)**                  | ** ** |
| **Cash flows from operating  activities:**                                                     |       |                                     |       |   |   |   |   |
| Net income                                                                                     |       | $                                        | 45,481     |   | $ | 42,051 |   | $ | 28,490 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:             |       |                                     |       |   |   |   |   |
| Depreciation and amortization                                                                  |       | 15,225                                   |       | 16,005 |   | 14,570 |   |
| Share-based compensation                                                                       |       | 4,033                                    |       | 2,278 |   | 2,492 |   |
| Deferred income taxes                                                                          |       | (1,132                                   | )          | (2,995 | ) | 2,062 |   |
| Loss (gain) on disposition of assets                                                           |       | (552                                     | )          | 385 |   | 3 |   |
| Changes in operating  assets and liabilities, net of effects of acquisitions and dispositions: |       |                                     |       |   |   |   |   |
| Accounts receivable                                                                            |       | (3,878                                   | )          | 2,023 |   | (12,803 | ) |
| Inventories                                                                                    |       | 2,898                                    |       | (12,026 | ) | (8,320 | ) |
| Prepaid expenses and other                                                                     |       | (2,667                                   | )          | (141 | ) | 34 |   |
| Accounts payable and accrued expenses                                                          |       | 863                                      |       | 2,378 |   | 8,342 |   |
| Current income tax payable and receivable                                                      |       | (3,159                                   | )          | 245 |   | 2,210 |   |
| Other assets and liabilities                                                                   |       | (3                                       | )          | 222 |   | 728 |   |
| Net cash provided by operating activities                                                      |       | 57,109                                   |       | 50,425 |   | 37,808 |   |
| **Cash flows from investing  activities:**                                                     |       |                                     |       |   |   |   |   |
| Capital expenditures                                                                           |       | (18,078                                  | )          | (10,580 | ) | (13,581 | ) |
| Sale of marketable securities                                                                  |       | 36,604                                   |       | 71,549 |   | 21,246 |   |
| Purchase of marketable securities                                                              |       | (13,600                                  | )          | (93,050 | ) | (17,791 | ) |
| Business acquisitions                                                                          |       | (40,255                                  | )          | — |   | (6,236 | ) |
| Proceeds from sale of assets                                                                   |       | 1,747                                    |       | 358 |   | 314 |   |
| Other assets                                                                                   |       | —                                   |       | — |   | 147 |   |
| Proceeds from sale of investment                                                               |       | —                                   |       | — |   | 1,044 |   |
| Net cash used in investing activities                                                          |       | (33,582                                  | )          | (31,723 | ) | (14,857 | ) |
| **Cash flows from financing  activities:**                                                     |       |                                     |       |   |   |   |   |
| Cash dividends paid                                                                            |       | (7,603                                   | )          | (6,691 | ) | (5,478 | ) |
| Payments on long-term debt and capital leases                                                  |       | (38,033                                  | )          | (12,922 | ) | (13,026 | ) |
| Notes payable to banks, net                                                                    |       | (2,501                                   | )          | 2,452 |   | (344 | ) |
| Proceeds from long-term debt                                                                   |       | 58,000                                   |       | — |   | — |   |
| Common stock issued under share-based compensation  plans                                      |       | 3,441                                    |       | 2,787 |   | 1,616 |   |
| Common stock repurchased                                                                       |       | (36,540                                  | )          | — |   | — |   |
| Excess tax benefit from exercise of share-based  compensation awards                           |       | 1,083                                    |       | 1,183 |   | 340 |   |
| Net cash used in financing activities                                                          |       | (22,153                                  | )          | (13,191 | ) | (16,892 | ) |
| **Effect  of exchange rate changes**                                                           |       | (274                                     | )          | (500 | ) | (1,161 | ) |
| Change in cash  and cash equivalents                                                           |       | 1,100                                    |       | 5,011 |   | 4,898 |   |
| Cash and cash  equivalents at beginning of year                                                |       | 35,493                                   |       | 30,482 |   | 25,584 |   |
| Cash and cash  equivalents at end of period                                                    |       | $                                        | 36,593     |   | $ | 35,493 |   | $ | 30,482 |   |

 

**Supplemental disclosure of noncash information:**

See Note 7 to Consolidated Financial Statements

The accompanying notes are an integral part of the consolidated financial statements.

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**Cascade CorporationNotes to Consolidated Financial Statements**

**Note 1—Descriptionof Business**

Cascade Corporation is aninternational company engaged in the manufacture of materials handling productsthat are widely used on industrial lift trucks and, to a lesser extent, onconstruction, mining and agricultural vehicles. Accordingly, our sales arelargely dependent on the sales of lift trucks and on the sales of replacementparts. Our sales are made throughout the world, but primarily in North Americaand Europe. We are headquartered in Fairview, Oregon, employing approximately2,100 people and maintaining operations in 15 countries outside the UnitedStates.

**Note 2—Summaryof Significant Accounting Policies**

**Principles ofConsolidation**

The consolidated financialstatements include the accounts of the company and our subsidiaries. Allsignificant intercompany accounts and transactions have been eliminated.

**Cash and CashEquivalents**

Cash and cash equivalentsconsist of cash on deposit and highly liquid investments with maturities ofthree months or less at the date of purchase.

**MarketableSecurities**

Marketable securitiesconsisted of auction rate and variable rate demand note securities issued byvarious state agencies throughout the United States. We classified thesesecurities as available-for-sale securities. These securities were insuredeither through third party agencies, reinsured through the federal governmentor secured by a letter of credit from a bank. The specific identificationmethod was used to determine the cost of securities sold. There were norealized or unrealized gains or losses related to our marketable securities.The securities were long-term instruments maturing through 2039; however, theinterest rates and maturities were reset approximately every month, at whichtime we could have sold the securities. Accordingly, we have classified thesecurities as current assets in our consolidated balance sheets.

**Allowances forTrade Accounts Receivable**

Trade accounts receivableare stated net of an allowance for doubtful accounts. We maintain allowancesfor doubtful accounts for estimated losses on accounts receivable resultingfrom the inability of our customers to make required payments. Such allowancesare based on evaluation of the credit worthiness of our customers, an ongoingreview of customer payments against terms, historical trends and economiccircumstances.

**Inventories**

Inventories are stated atthe lower of average cost or market. Cost is computed on a standard basis,which approximates actual cost.

**Property, Plant andEquipment**

Property, plant andequipment are stated at cost less accumulated depreciation. Depreciation isgenerally provided using the straight-line method over the estimated usefullives of the assets. Tooling costs are capitalized as machinery and equipment.Useful lives range from thirty to forty years for 

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buildings,fifteen years for land improvements and two to ten years for machinery andequipment. Maintenance and repairs are expensed as incurred and costs ofimprovements and renewals are capitalized. Upon disposal, cost and accumulateddepreciation are removed from the accounts and the resulting gains or lossesare reflected in operations.

**Intangible Assets**

Intangible assetsrepresent items such as customer relationships, intellectual property,primarily patents and trade names, and non-compete agreements that are assigneda fair value at the date of acquisition. We amortize these finite-lived assetson a straight-line basis over the periods that expected economic benefits willbe provided. Useful lives range from six to ten years for customerrelationships, four to ten years for intellectual property and one to fiveyears for other intangible assets.

**Goodwill**

Goodwill represents theexcess of the cost of acquired businesses over the fair value of the netidentifiable assets acquired. We perform an annual review for impairment at thereporting unit level, North America, Europe, PSM and Australia. The tests areperformed by determining the fair values of the reporting units using adiscounted cash flow model and comparing those fair values to the carryingvalues of the reporting units, including goodwill. The factors considered inperforming this assessment include current and projected future operatingresults and changes in the intended uses of the assets, as well as the effectsof obsolescence, demand, competition, and other industry and economic trends. Wehave completed our annual review for impairment and determined that there hasbeen no impairment of goodwill.

**Impairment ofLong-Lived Assets**

Long-lived assets,primarily property, plant and equipment, are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of suchassets may not be recoverable. Determination of recoverability is based on anestimate of undiscounted future cash flows resulting from the use of the assetsand eventual disposition in comparison with the carrying value. Measurement ofan impairment loss for long-lived assets that we expect to hold and use is basedon the fair value of the asset.

**Common Stock**

We follow the practice of recording amounts receivedupon the exercise of awards by crediting common stock and additional paid-incapital. In addition, we credit additional paid-in-capital upon the recognitionof share-based compensation expense. We realize an income tax benefit from theexercise or early disposition of certain stock awards. This benefit results ina decrease in current income taxes payable and an increase in additionalpaid-in capital.

During the third quarterof fiscal 2007, we started a program to repurchase common stock of up to $80million over a two-year period. As of January 31, 2007 we repurchased757,000 shares for $36.5 million, net of $2.3 million recorded as aliability on our consolidated balance sheet. The repurchase of shares of commonstock is recorded as a reduction in additional paid-in capital until theaccount balance is zero, then future repurchases are recorded as a reduction inretained earnings.

**MinimumPension/Postretirement Liability Adjustment**

We record a minimumpension/postretirement liability adjustment to the extent that the accumulatedbenefit obligation exceeds the fair value of plan assets and accruedpension/postretirement liabilities. This adjustment is reflected as a reductionin shareholders’ equity, net of income tax benefits. During the year 

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ended January 31,2007, we adopted Statement of Financial Accounting Standards (SFAS) No. 158(SFAS 158) “Employees’ Accounting for Defined Benefit Pension and OtherPost retirement Plans—an amendment of FASB Statements No. 87, 88, 106, and132(R).” See Note 8 “Benefit Plans” for further details regarding ouraccounting under SFAS 158.

**Share-BasedCompensation**

Prior to May 1, 2005 we accounted for our stockoptions under Accounting Principles Board Opinion No. 25 (APB 25), “Accountingfor Stock Issued to Employees,” which permitted the use of intrinsic valueaccounting. No stock-based compensation cost was reflected in net income forstock options, as all options granted had an exercise price equal to the marketprice of the underlying common stock on the date of grant. We had adopteddisclosure-only provisions of SFAS No. 123, “Accounting for Stock-BasedCompensation” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transitionand Disclosure-an Amendment of FASB Statement No. 123.”

We also granted awards under a stock appreciationrights (SARS) plan. Under Financial Interpretation No. (FIN) 28, “Accountingfor Stock Appreciation Rights and Other Variable Stock Option or Award Plans,”SARS were accounted for under variable plan accounting. Accordingly, werecorded deferred compensation as a reduction of shareholders’ equity, equal tothe excess of the market value of our common stock on the balance sheet date ordate of exercise over the base price at the date of grant. The deferredcompensation was recognized as an expense over the vesting period based on theperiods in which the executives and directors performed services.

In the second quarter of fiscal 2006, we adopted SFAS No. 123(revised 2004), “Share-Based Payment” (123R). This standard is a revision ofSFAS 123, “Accounting for Stock-Based Compensation” and supersedes APB 25 andFIN 28. SFAS 123R addresses the accounting for share-based compensation inwhich we receive employee services in exchange for our equity instruments. UnderSFAS 123R, we are required to recognize compensation cost for share-basedcompensation issued to or purchased by employees, net of estimated forfeitures,under share-based compensation plans using a fair value method. We adopted SFAS123R using the modified prospective method as of May 1, 2005. Accordingly,no prior periods were restated. Under this method, we recorded compensationexpense for all awards granted after the date of adoption and for the unvestedportion of previously granted awards that remained outstanding as of thebeginning of the period of adoption. See Note 9, “Share-based Compensation” forfurther details regarding our accounting under SFAS 123R.

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Thefollowing table illustrates the pro forma effect on net income and earnings pershare if we had recorded compensation expense based on the fair value methodfor all share-based compensation awards (in thousands, except per shareamount):

| ** **                                                                                                                               | ** ** | **Year Ended January 31**                          | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                                               | ** ** | **2007**                                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                                                               | ** ** | **(In thousands,  except per share amounts)** | ** ** |
| Net income—as  reported                                                                                                             |       | $                                                                 | 45,481     |   | $ | 42,051 |   | $ | 28,490 |   |
| Add: SARS  amortization, net of income taxes of $80 in 2006 and $822 in 2005                                                             |       | —                                                            |       | (148 | ) | 1,671 |   |
| Net income  excluding SARS amortization                                                                                                  |       | 45,481                                                            |       | 41,903 |   | 30,161 |   |
| Deduct: total  stock-based compensation, net of income taxes of $140 in 2006 and $499 in  2005, determined under fair value based method |       | —                                                            |       | (297 | ) | (1,115 | ) |
| Net income—pro  forma                                                                                                               |       | $                                                                 | 45,481     |   | $ | 41,606 |   | $ | 29,046 |   |
| Basic earnings per share—as reported                                                                                                |       | $                                                                 | 3.64       |   | $ | 3.40 |   | $ | 2.34 |   |
| Basic earnings  per share—pro forma                                                                                                 |       | $                                                                 | 3.64       |   | $ | 3.37 |   | $ | 2.39 |   |
| Diluted earnings  per share—as reported                                                                                             |       | $                                                                 | 3.48       |   | $ | 3.27 |   | $ | 2.24 |   |
| Diluted earnings  per share—pro forma                                                                                               |       | $                                                                 | 3.48       |   | $ | 3.24 |   | $ | 2.28 |   |

 

Wecalculated share-based compensation cost using the Black-Scholes option pricingmodel. The range of assumptions used to compute share-based compensation are asfollows:

| ** **                                    | ** ** | **Year Ended January 31** | ** ** |
|-----------------------------------------------|------------|------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| Risk-free  interest rate                      |       | 5.0                                      | %          | 4.1 | % | 3.8 | % |
| Expected volatility                           |       | 41                                       | %          | 40 | % | 42 | % |
| Expected dividend  yield                      |       | 1.6                                      | %          | 1.1 | % | 2.1 | % |
| Expected life (in  years)                     |       | 6                                        |       | 6 |   | 5 |   |
| Weighted average fair  value at date of grant |       | $                                        | 15.24      |   | $ | 17.86 |   | $ | 7.46 |   |
|                                               |            |                                          |            |  |  |  |  |  |  |  |

 

Expected volatility isbased on the historical volatility of the price of our common shares over thepast six years. We use historical information to estimate award exercise andforfeitures within the valuation model. The expected term of awards is derivedfrom the output of the option valuation model and represents the period of timethat options granted are expected to be outstanding. The risk-free rate forperiods within the contractual life of the option is based on the U.S. Treasuryyield curve in effect at the time of grant. Compensation cost is recognizedusing a straight-line method over the vesting or service period and is net ofestimated forfeitures.

**Foreign CurrencyTranslation**

We translate the balancesheets of our foreign subsidiaries using fiscal year-end exchange rates. Thecumulative effect on such translations is included in shareholders’ equity. Theconsolidated statements of income and cash flows are translated using theaverage exchange rates for the period.

**EnvironmentalRemediation**

We accrue environmentalcosts if it is probable a liability has been incurred at the financialstatement date and the amount can be reasonably estimated. Recorded liabilitieshave not been discounted. Environmental compliance and legal costs are expensedas incurred. Assets related to the reimbursement of amounts expended for environmentalexpenses are recognized only when realization is probable.

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**Foreign CurrencyForward Exchange Contracts**

Gains and losses onforeign currency forward exchange contracts, which generally mature in onemonth or less, are recognized in operations and measured over the period of thecontract by reference to the forward rate for a contract to be consummated onthe same future date as the original contract.

**Revenue Recognition**

We recognize revenue when the following criteria aremet:

**Persuasiveevidence of an arrangement exists—****Sales** arrangementsare supported by written or electronic documentation or evidence from acustomer.

**Deliveryhas occurred or services have been rendered—****Revenue** isrecognized when title transfers and risk and rewards of ownership have passedto the customer. This generally occurs upon shipment of our product with “FOBShipping Point” terms. Shipments with “FOB Destination” terms are recorded asrevenue when products are delivered to the customer. Customers are responsiblefor payment even if the product is not sold to their end customer. Onceshipping terms are met we have no continuing obligations or performancecriteria requirements.

**Fixedor determinable sales price—****Sales******are at fixed or established sales prices determined priorto the time the products are shipped with no customer cancellation, priceprotection or termination clauses.

**Collectibility isreasonably assured—****Based** on our credit managementpolicies, we generally believe collectibility is reasonably assured whenproduct is shipped to a customer. Provisions for uncollectible accounts andreturn allowances are recorded at the time revenue is recognized based on ourhistorical experience.

**Shipping andHandling Costs**

We incur shipping,handling and other related costs for the shipment of goods to customers. Thesecosts are recognized in the period in which the expenses occur and areclassified as cost of goods sold. Amounts billed to customers for shipping,handling and related costs are reported as a component of net sales.

**WarrantyObligations**

We record a liability onour consolidated balance sheet for costs related to certain warranties weprovide with the sales of our products. This liability is estimated throughhistorical customer claims, product failure rates, material usage and servicedelivery costs incurred in correcting a product failure.

**Income Taxes**

Deferred income tax assetsand liabilities are recognized for the expected tax consequences of temporarydifferences between the tax bases of assets and liabilities and the amountsreported in the consolidated financial statements. The provision for incometaxes is the tax payable for the period and the change during the period in netdeferred income tax assets and liabilities. Valuation allowances areestablished when necessary to reduce deferred income tax assets to the amountexpected to be realized.

**Research andDevelopment Costs**

Research and developmentcosts are expensed as incurred and are related to developing new products andto improving existing products or processes. These costs primarily includesalaries, supplies, legal costs related to patents and design costs. Weincurred research and development costs of $3.8 million,$3.3 million, and $3.2 million for the years ended January 31,2007, 2006 and 2005, respectively.

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**Concentrations of Credit Risk**

Financial instruments thatpotentially subject us to concentrations of credit risk consist principally ofcash and cash equivalents, marketable securities, accounts receivable andforeign currency forward exchange contracts. We place our cash and cashequivalents in major financial institutions. Deposits held with the financialinstitutions may exceed the Federal Deposit Insurance Corporation limit.

We manage our credit riskon marketable securities by limiting the size of any one holding to 5% of thetotal issue, requiring a minimum issue size of $50 million and limiting theinvestment in any one issue to $5 million, except for obligations of U.S.government agencies.

Accounts receivable arewith a large number of customers, primarily equipment manufacturers anddealers, dispersed across a wide geographic base. No single customer accountsfor more than 10% of our consolidated net sales. Our consolidated net sales forthe years ended January 31, 2007, 2006 and 2005 to all original equipmentmanufacturers (OEM) customers were 45%, 45% and 40% of total net sales,respectively. This percentage is consistent with recent years. We performon-going credit evaluations and do not require collateral. Allowances aremaintained for potential credit losses when deemed necessary.

See Note 11 fordiscussion of foreign currency forward exchange contracts.

**Use of Estimates**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. We base our estimates on our historical experience andvarious other assumptions that are believed to be reasonable under thecircumstances. Actual results could differ from those estimates. Significantestimates and judgments made by our management include matters such as thecollectibility of accounts receivable, realizability of deferred income taxassets, realizability of goodwill and long-lived assets, warranty liabilities,share based compensation and benefit plan assumptions and future costs ofenvironmental matters.

**Earnings Per Share**

Basic earnings per shareis computed by dividing income available to common shareholders by the weightedaverage number of common shares outstanding for the period. Diluted earningsper share reflects potential dilution that could occur if stock options andSARS were exercised or converted into common stock using the treasury stockmethod.

**Recent Accounting Pronouncements**

**SFAS 151**—InNovember 2004, the Financial Accounting Standards Board (“FASB”) issuedSFAS No. 151 (SFAS 151), “Inventory Costs, an amendment of ARB No. 43,Chapter 4.” This statement amends the guidance in ARB No. 43, Chapter4, “Inventory Pricing”, to clarify the accounting for abnormal amounts of idlefacility expense, freight, handling costs, and wasted material (spoilage).Paragraph 5 of ARB No. 43, Chapter 4, previously stated that “....under somecircumstances, items such as idle facility expense, excessive spoilage, doublefreight, and re-handling costs may be so abnormal as to require treatment ascurrent period charges...” SFAS 151 requires that those items be recognized ascurrent-period charges regardless of whether they meet the criterion of “soabnormal.” In addition, this statement requires that allocation of fixedproduction overhead to the costs of conversion be based on the normal capacityof the production facilities. The provisions of SFAS 151 were effective for uson February 1, 2006. The adoption of SFAS 151 did not have a materialimpact on our financial position or results of operations.

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**SFAS154**—In May 2005, the FASB issued SFAS No. 154(SFAS 154), “Accounting Changes and Error Corrections—a replacement of APBOpinion No. 20 and FASB Statement No. 3.” SFAS 154 changes therequirements for the accounting for and reporting of a change in accountingprinciple. This statement applies to all voluntary changes in accountingprinciples. It also applies to changes required by an accounting pronouncementin the unusual instance that the pronouncement does not include specifictransition provisions. SFAS 154 requires the application of a change inaccounting principle be applied to prior accounting periods presented as ifthat principle had always been used. When a pronouncement includes specifictransition provisions, those provisions should be followed. SFAS 154 iseffective for accounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005. The adoption of SFAS 154 at thebeginning of fiscal 2007 did not have an effect on our consolidated financialstatements.

**FIN48**—In June 2006, the FASB issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes.” Thisinterpretation clarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordance with FASBStatement No. 109, “Accounting for Income Taxes.” FASB Interpretation No. 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. It also provides guidance on de-recognition,classification, interest and penalties, accounting in interim periods,disclosure and transition. We are currently evaluating the impact of FASBInterpretation No. 48 on our financial statements. Application of thisinterpretation is required for our financial statements at the beginning offiscal year ended January 31, 2008.

**SFAS157**—In September 2006, the FASB issued SFAS No. 157(SFAS 157), “Fair Value Measurements.” SFAS 157 provides a common definition offair value, establishes a framework for measuring fair value and expands therelated disclosure requirements. We are currently evaluating the impact of SFAS157 on our financial statements. Application of SFAS 157 is required for ourfinancial statements for the fiscal year beginning February 1, 2008.

**SFAS158**—In September 2006, the FASB issued SFAS No. 158(SFAS 158), “Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and132(R).” This statement requires balance sheet recognition of the overfunded orunderfunded status of pension and postretirement benefit plans. Under SFAS 158,actuarial gains and losses, prior service costs or credits, and any remainingtransition assets or obligations that have not been recognized under previousaccounting standards must be recognized in other comprehensive income, net oftax effects, until they are amortized as a component of net periodic benefit cost.In addition, the measurement date, the date at which plan assets and thebenefit obligation are measured, is required to be the company’s fiscal yearend. Presently, we use a December 31 measurement date for thepostretirement benefit plan, which will need to change to coincide with our January 31fiscal year-end date. We adopted SFAS 158 for our financial statements for thefiscal year ended January 31, 2007, except for the measurement dateprovision, which is effective for the fiscal year ending January 31, 2009.The impact of adopting SFAS 158 increased the employee benefit liability on ourconsolidated balance sheet by $1.0 million and decreased shareholders’ equityby $657,000, net of tax.

**SAB108**—In September 2006, the SEC issued StaffAccounting Bulletin No. 108 (SAB 108) “Considering the Effects of PriorYear Misstatements when Quantifying Misstatements in Current Year FinancialStatements.” SAB 108 provides interpretive guidance on how the effects of thecarryover or reversal of prior year misstatements should be considered inquantifying a current year misstatement. The SEC staff believes thatregistrants should quantify errors using both a balance sheet and incomestatement approach and evaluate whether either approach results in quantifyinga misstatement that, when all relevant quantitative and qualitative factorsconsidered, is material. Application of SAB 108 did not have an impact on ourconsolidated financial statements for the fiscal year ending January 31,2007.

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**SFAS 159—**InFebruary 2007, the FASB issued SFAS No. 159 (SFAS 159), “The FairValue Option for Financial Assets and Financial Liabilities—Including anAmendment of FASB Statement No. 115.” SFAS 159 allows companies the choiceto measure many financial instruments and certain other items at fair value.Application of SFAS 159 is required for our financial statements beginning February 1,2008. We are currently reviewing the impact of this pronouncement on ourconsolidated financial statements.

**Note 3—Inventories**

| ** **                     | ** ** | **January 31**     | ** ** |
|--------------------------------|------------|-------------------------|------------|
| ** **                     | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                     | ** ** | **(In thousands)** | ** ** |
| Finished goods  and components |       | $                       | 36,716     |   | $ | 37,236 |   |
| Work in process                |       | 399                     |       | 620 |   |
| Raw materials                  |       | 21,165                  |       | 19,140 |   |
|                           |       | $                       | 58,280     |   | $ | 56,996 |   |

 

**Note 4—Property,Plant and Equipment**

| ** **                | ** ** | **January 31**     | ** ** |
|---------------------------|------------|-------------------------|------------|
| ** **                | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                | ** ** | **(In thousands)** | ** ** |
| Land                      |       | $                       | 6,069      |   | $ | 6,415 |   |
| Buildings                 |       | 48,201                  |       | 42,558 |   |
| Machinery and  equipment  |       | 164,481                 |       | 149,259 |   |
|                      |       | 218,751                 |       | 198,232 |   |
| Accumulated  depreciation |       | (134,600                | )          | (122,858 | ) |
|                      |       | $                       | 84,151     |   | $ | 75,374 |   |

 

Depreciation expense forthe years ended January 31, 2007, 2006 and 2005, was $13.8 million,$14.6 million and $13.9 million, respectively.

**Note 5—Debt**

| ** **                                                                                                                                   | ** ** | **January 31**     | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                   | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                                                                                                                                   | ** ** | **(In thousands)** | ** ** |
| $125 million  revolving line of credit, variable interest rate payable at 6.06% at  January 31, 2007, principal payable in fiscal 2012. |       | $                       | 34,000     |   | $ | — |   |
| Senior notes,  interest at 6.92% payable semi-annually, principal due annually through  fiscal 2008                                          |       | 12,500                  |       | 25,000 |   |
| Other debt                                                                                                                                   |       | 73                      |       | 181 |   |
|                                                                                                                                         |       | 46,573                  |       | 25,181 |   |
| Less current  portion                                                                                                                        |       | (12,573                 | )          | (12,681 | ) |
| Long-term debt                                                                                                                               |       | $                       | 34,000     |   | $ | 12,500 |   |

 

 

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Our debt agreements contain covenants relating to networth and leverage ratios. We were in compliance with these covenants at January 31,2007. The average interest rate on notes payable to banks was 4.9% duringfiscal 2007 and 3.0% during fiscal 2006.

Borrowing arrangements currently in place withcommercial banks provide available lines of credit totaling $125 million, ofwhich $3.2 million were being used at January 31, 2007 through theissuance of letters of credit. Borrowings under lines of credit were $34million at January 31, 2007. Amounts under the lines of credit bearinterest at LIBOR plus a margin, based on certain Company financial ratios. Asof January 31, 2007 the interest rate was LIBOR plus a margin of 0.75%. Commitmentfees on unused amounts are 0.225%.

Futurematurities of long-term debt are as follows (in thousands):

| **Year ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|
| 2008                                     |       | $          | 12,573     |       |
| 2012                                     |       | 34,000     |       |
|                                     |       | $          | 46,573     |       |

**Note 6—Income Taxes**

| ** **                                                | ** ** | **Year Ended January 31** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                | ** ** | **(In thousands)**                  | ** ** |
| Provision (benefit) for  income taxes consisted of:       | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current:                                                  |       |                                     |       |   |   |   |   |
| Federal                                                   |       | $                                        | 11,056     |   | $ | 12,397 |   | $ | 8,398 |   |
| State                                                     |       | 1,582                                    |       | 1,459 |   | 1,554 |   |
| Foreign                                                   |       | 12,268                                   |       | 9,789 |   | 7,096 |   |
|                                                      |       | 24,906                                   |       | 23,645 |   | 17,048 |   |
| Deferred:                                                 |       |                                     |       |   |   |   |   |
| Federal                                                   |       | (593                                     | )          | (1,160 | ) | (792 | ) |
| State                                                     |       | (91                                      | )          | 13 |   | 242 |   |
| Foreign                                                   |       | (448                                     | )          | (2,322 | ) | (1 | ) |
|                                                      |       | (1,132                                   | )          | (3,469 | ) | (551 | ) |
| Total provision  for income taxes                         |       | $                                        | 23,774     |   | $ | 20,176 |   | $ | 16,497 |   |
| Income before provision  for income taxes was as follows: |       |                                     |       |   |   |   |   |
| United States                                             |       | $                                        | 36,443     |   | $ | 36,139 |   | $ | 26,536 |   |
| Foreign                                                   |       | 32,812                                   |       | 26,088 |   | 18,451 |   |
|                                                      |       | $                                        | 69,255     |   | $ | 62,227 |   | $ | 44,987 |   |

 

Reconciliation of the federal statutory rate to theeffective tax rate is as follows: 

| Federal statutory rate                         |   | 35.0   | %      | 35.0   | %      | 35.0   | %      |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| State income taxes, net of federal tax benefit |   | 1.3    |   | 1.5    |   | 2.1    |   |
| Tax on foreign earnings                        |   | 0.5    |   | (1.1   | )      | (1.4   | )      |
| U.S. export sales                              |   | (0.3   | )      | (0.7   | )      | (0.7   | )      |
| International financing                        |   | (0.5   | )      | (0.9   | )      | (1.7   | )      |
| Stock options                                  |   | 0.5    |   | 0.6    |   | — |   |
| Manufacturing deduction                        |   | (0.2   | )      | (0.4   | )      | — |   |
| Net change in valuation allowance              |   | (2.0   | )      | (1.6   | )      | 3.9    |   |
| Other                                          |   | — |   | — |   | (0.5   | )      |
| Effective income  tax rate                     |   | 34.3   | %      | 32.4   | %      | 36.7   | %      |

 

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Thecomponents of deferred income tax assets and liabilities recorded on theconsolidated balance sheet are as follows (in thousands):

| ** **                        | ** ** | **January 31** | ** ** |
|-----------------------------------|------------|---------------------|------------|
| ** **                        | ** ** | **2007**            | ** ** | **2006** | ** ** |
| Deferred tax  assets:             | ** ** | ** **          | ** ** | ** ** | ** ** |
| Accruals                          |       | $                   | 3,555      | ** ** | $ | 2,075 | ** ** |
| Environmental                     |       | 2,556               |       | 2,964 |   |
| Employee benefits                 |       | 6,230               |       | 4,869 |   |
| Foreign tax credits               |       | 6,270               |       | 9,961 |   |
| Foreign net operating losses      |       | 9,867               |       | 8,860 |   |
| Foreign capital losses            |       | 1,041               |       | 1,175 |   |
| Other                             |       | 1,033               |       | 1,378 |   |
|                              |       | 30,552              |       | 31,282 |   |
| Less: Valuation  allowance        |       | (8,752              | )          | (9,603 | ) |
|                              |       | 21,800              |       | 21,679 |   |
| Deferred tax  liabilities:        |       |                |       |   |   |
| Depreciation                      |       | (4,596              | )          | (5,830 | ) |
| Cumulative translation adjustment |       | (1,865              | )          | (2,848 | ) |
| Other                             |       | (1,839              | )          | (1,927 | ) |
|                              |       | (8,300              | )          | (10,605 | ) |
| Total net  deferred tax asset     |       | $                   | 13,500     |   | $ | 11,074 |   |

 

Thenet deferred tax asset is presented in our consolidated balance sheets asfollows (in thousands):

| ** **                                      | ** ** | **January 31** | ** ** |
|-------------------------------------------------|------------|---------------------|------------|
| ** **                                      | ** ** | **2007**            | ** ** | **2006** | ** ** |
| Deferred income  taxes—current asset       |       | $                   | 4,481      |   | $ | 3,232 |   |
| Deferred income  taxes—long-term asset     |       | 11,817              |       | 11,851 |   |
| Deferred income  taxes—long-term liability |       | (2,798              | )          | (4,009 | ) |
|                                            |       | $                   | 13,500     |   | $ | 11,074 |   |

 

In assessing the realizability of deferred tax assets,we consider whether it is more likely than not that some or all of the deferredtax assets will not be realized. We consider taxable income in prior carrybackyears to the extent permitted under the tax law, scheduled reversal of deferredtax liabilities, projected future taxable income and tax planning strategies inmaking this assessment. We believe we will be able to generate sufficienttaxable income to realize our deferred tax assets, net of valuation allowances,but changes in our operations due to market conditions could require therecording of additional valuation allowances in the future. It is reasonablypossible that a change to the valuation allowance in the next year could bematerial.

We recorded a valuation allowance for the year ended January 31,2007 and January 31, 2006 of approximately $8.8 million and $9.6 million,respectively. During the year ended January 31, 2007, the valuationallowance decreased $851,000, net of currency changes. The net change primarilyrelates to the realizability of foreign tax credits, net of current yearforeign net operating losses. During the fourth quarter of fiscal 2007,management determined that it was more likely than not that we would realizecertain foreign tax credits and a valuation allowance of $2.1 million againstthose credits was no longer necessary. Management determined that for certainforeign jurisdictions, it was more likely than not, we would not realize thedeferred tax asset resulting from current net operating losses and anadditional valuation allowance of $1.6 million was recorded against theselosses. The valuation allowance for net operating losses in The Netherlands wasalso reduced by $837,000 due to a reduction in the statutory tax 

48

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rate. This changecoincided with a reduction in the related deferred tax asset and had no neteffect on the provision for income taxes for fiscal 2007.

The decrease in the valuation allowance for the yearended January 31, 2006 of $1.8 million, net of currency changes, primarilyrelates to the realizability of foreign net operating loss and capital losscarryforwards and liabilities for employee benefit plan, net of current yearnet operating losses. During the year management determined that for certainforeign jurisdictions, it was more likely than not, we would realize certainexisting foreign net operating and capital loss carryforwards and tax benefitsrelated to certain liabilities for employee benefit plans. In addition,management determined that for certain foreign jurisdictions, it was morelikely than not, we would not realize current foreign net operating losses andwe would continue to record valuation allowances against these losses.

The increase in the valuation allowance for the yearended January 31, 2005 of $2.1 million, primarily relates to additionalvaluation allowances for net operating losses in foreign subsidiaries.

As of January 31, 2007, we have foreign netoperating loss carryforwards of approximately $34.7 million. These foreignnet operating loss carryforwards are available to offset future taxable incomeand have no future expiration dates. The net operating loss carryforwardsrelate to subsidiaries in Europe and Australia. As of January 31, 2007, wehave foreign capital loss carryforwards of approximately $3.4 million.These foreign capital loss carryforwards are available to offset future capitalgains and have no future expiration dates.

A deferred tax asset of$6.3 million has been recognized for U.S. foreign tax credits attributed torepatriated foreign earnings. Realization of this deferred tax asset isdependent on generating sufficient foreign-sourced U.S. taxable income over aten year period ending in fiscal 2017.

**Note 7—Supplemental Cash Flow Information**

| ** **                                                | ** ** | **Year Ended January 31** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                | ** ** | **(In thousands)**                  | ** ** |
| Cash paid during period  for:                             |       |                                     |       | ** ** |   |   |   |
| Interest                                                  |       | $                                        | 2,403      |   | $ | 2,858 |   | $ | 3,741 |   |
| Income taxes                                              |       | $                                        | 25,776     |   | $ | 22,079 |   | $ | 14,346 |   |
| Supplemental disclosure  of investing activities:         |       |                                     |       |   |   |   |   |
| Business  acquisitions:                                   |       |                                     |       |   |   |   |   |
| Accounts receivable                                       |       | $                                        | 2,281      |   | $ | — |   | $ | 54 |   |
| Inventories                                               |       | 2,389                                    |       | — |   | 1,539 |   |
| Property, plant and equipment                             |       | 2,179                                    |       | — |   | 5,405 |   |
| Intangible assets                                         |       | 16,100                                   |       | — |   | — |   |
| Goodwill                                                  |       | 22,025                                   |       | — |   | — |   |
| Other assets                                              |       | 564                                      |       | — |   | — |   |
| Accounts payable and other liabilities assumed            |       | (1,677                                   | )          | — |   | (762 | ) |
| Notes payable assumed                                     |       | (3,606                                   | )          | — |   | — |   |
| Total cash paid for acquisitions                          |       | $                                        | 40,255     |   | $ | — |   | $ | 6,236 |   |
| Supplemental disclosure  of noncash information:          |       |                                     |       |   |   |   |   |
| Minimum pension liability adjustment, net of tax  benefit |       | $                                        | (605       | ) | $ | 677 |   | $ | — |   |
| Deferred compensation from stock appreciation rights      |       | $                                        | —     |   | $ | (4,734 | ) | $ | 6,698 |   |
| Liability for common  stock repurchase                    |       | $                                        | 2,278      |   | $ | — |   | $ | — |   |

 

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**Note 8—EmployeeBenefit Plans**

We sponsor a number of defined contribution retirementplans. We match employee contributions in varying degrees and also makecontributions to certain plans based on a percentage of employee wages. Ourexpense under these plans was $4.8 million, $4.0 million, and$3.8 million for the years ended January 31, 2007, 2006 and 2005,respectively.

As of January 31, 2007 we sponsored variousdefined benefit pension plans covering certain employees in France and England.Benefits under the defined benefit pension plans are based on years of serviceand average earnings over a specified period of time. The net periodic cost ofour defined benefit pension plans is determined using the projected unit creditmethod. Several actuarial assumptions are used to determine the defined benefitpension obligations and net periodic pension cost, the most significant ofwhich are the discount rate, the long-term rate of asset return andchanges in compensation levels. Our funding policy for defined benefit pensionplans is to make annual contributions based on actuarially determined fundingrequirements.

During fiscal 2006, we modified certain provisions ofour plan in England. These provisions eliminated the accrual of future benefitsunder the plan after November 1, 2005 and committed us to makecontributions to the plan of approximately $390,000 annually over a five yearperiod. We made our first contribution during fiscal 2007.

During fiscal 2007, we terminated our defined benefitpension plan in Canada through the purchase of annuities and a lump sumdistribution. We have no further obligation under this plan.

The following tablepresents the changes in benefit obligations, changes in plan assets and fundedstatus of our defined benefit pension and postretirement benefit plans.Benefit obligation balances presented in the table reflect the projectedbenefit obligation (PBO) for our defined benefit pension plans and accumulatedpostretirement benefit obligations (APBO) for the postretirement benefit plan.Both the PBO and APBO include the estimated present value of futurebenefits that will be paid to plan participants, based on expected futuresalary growth and employee services rendered through the measurement date. Weuse a measurement date of January 31 for all definedbenefit pension plans and December 31 for the postretirement plan.

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| ** **                                                                              | ** ** | **Year Ended January 31** | ** ** | **Year Ended January 31** | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                              | ** ** | **Defined Benefit**                 | ** ** | **Postretirement Benefit**          | ** ** |
| ** **                                                                              | ** ** | **2007**                                 | ** ** | **2006**                                 | ** ** | **2005** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                              | ** ** | **(In thousands)**                  | ** ** |
| **Change  in benefit obligation**                                                       |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Benefit obligation  at beginning of year                                                |       | $                                        | 10,713     |                                     | $          | 9,138 |   | $ | 8,578 |   | $ | 8,490 |   | $ | 8,082 |   | $ | 9,389 |   |
| Service cost                                                                            |       | 59                                       |       | 199                                      |       | 192 |   | 137 |   | 127 |   | 143 |   |
| Interest cost                                                                           |       | 480                                      |       | 465                                      |       | 462 |   | 456 |   | 433 |   | 527 |   |
| Participant  contributions                                                              |       | —                                   |       | 62                                       |       | 66 |   | 325 |   | 323 |   | 309 |   |
| Plan amendments                                                                         |       | —                                   |       | (48                                      | )          | — |   | — |   | (613 | ) | — |   |
| Benefits paid                                                                           |       | (1,114                                   | )          | (239                                     | )          | (174 | ) | (544 | ) | (756 | ) | (724 | ) |
| Actuarial (gain)  or loss                                                               |       | (1,300                                   | )          | 1,558                                    |       | 261 |   | (1,351 | ) | 894 |   | (1,562 | ) |
| Settlements                                                                             |       | 84                                       |       | —                                   |       | (561 | ) | — |   | — |   | — |   |
| Exchange rate  changes                                                                  |       | 977                                      |       | (422                                     | )          | 314 |   | — |   | — |   | — |   |
| Benefit obligation  at end of year                                                      |       | 9,899                                    |       | 10,713                                   |       | 9,138 |   | 7,513 |   | 8,490 |   | 8,082 |   |
| **Change in plan assets**                                                               |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Fair value of plan  assets at beginning of year                                         |       | 7,195                                    |       | 6,627                                    |       | 6,078 |   | — |   | — |   | — |   |
| Actual return on  plan assets                                                           |       | 407                                      |       | 855                                      |       | 567 |   | — |   | — |   | — |   |
| Employer  contributions                                                                 |       | 498                                      |       | 167                                      |       | 420 |   | 219 |   | 433 |   | 415 |   |
| Participant  contributions                                                              |       | —                                   |       | 62                                       |       | 66 |   | 325 |   | 323 |   | 309 |   |
| Benefits paid                                                                           |       | (1,114                                   | )          | (229                                     | )          | (174 | ) | (544 | ) | (756 | ) | (724 | ) |
| Settlements                                                                             |       | —                                   |       | —                                   |       | (561 | ) | — |   | — |   | — |   |
| Exchange rate  changes                                                                  |       | 707                                      |       | (287                                     | )          | 231 |   | — |   | — |   | — |   |
| Fair value of plan  assets at end of year                                               |       | 7,693                                    |       | 7,195                                    |       | 6,627 |   | — |   | — |   | — |   |
| **Reconciliation of funded status**                                                     |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Funded status                                                                           |       | (2,206                                   | )          | (3,518                                   | )          | (2,511 | ) | (7,513 | ) | (8,490 | ) | (8,082 | ) |
| Unrecognized  actuarial loss                                                            |       | N/A                                      |       | 3,360                                    |       | 2,511 |   | N/A |   | 3,509 |   | 2,977 |   |
| Unrecognized prior  service cost                                                        |       | N/A                                      |       | —                                   |       | — |   | N/A |   | (745 | ) | (147 | ) |
| Net amount  recognized at year-end                                                      |       | $                                        | (2,206     | )                                        | $          | (158 | ) | $ | — |   | $ | (7,513 | ) | $ | (5,726 | ) | $ | (5,252 | ) |
| **Amounts  recognized in the balance sheet consist of:**                                |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Non-current  liability                                                                  |       | $                                        | (2,206     | )                                        | $          | — |   | $ | — |   | $ | (7,513 | ) | $ | — |   | $ | — |   |
| Prepaid benefit  cost                                                                   |       | —                                   |       | 112                                      |       | 254 |   | — |   | — |   | — |   |
| Accrued benefit  cost                                                                   |       | —                                   |       | (3,752                                   | )          | (2,666 | ) | — |   | (5,726 | ) | (5,252 | ) |
| Accumulated other  comprehensive income                                                 |       | —                                   |       | 3,482                                    |       | 2,412 |   | — |   | — |   | — |   |
| Net amount  recognized at year-end                                                      |       | $                                        | (2,206     | )                                        | $          | (158 | ) | $ | — |   | $ | (7,513 | ) | $ | (5,726 | ) | $ | (5,252 | ) |
| **Amounts  recognized in accumulated other comprehensive income (pre-tax) consist of:** |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Net actuarial loss  (gain)                                                              |       | $                                        | 2,087      |                                     | $          | — |   | $ | — |   | $ | 1,715 |   | $ | — |   | $ | — |   |
| Prior service cost  (credit)                                                            |       | —                                   |       | —                                   |       | — |   | (668 | ) | — |   | — |   |
| Total                                                                                   |       | $                                        | 2,087      |                                     | $          | — |   | $ | — |   | $ | 1,047 |   | $ | — |   | $ | — |   |
| **Components of net periodic  benefit cost**                                            |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Service cost                                                                            |       | $                                        | 59         |                                     | $          | 199 |   | $ | 192 |   | $ | 136 |   | $ | 127 |   | $ | 143 |   |
| Interest cost                                                                           |       | 480                                      |       | 464                                      |       | 462 |   | 456 |   | 433 |   | 527 |   |
| Expected return on  plan assets                                                         |       | (458                                     | )          | (446                                     | )          | (422 | ) | — |   | — |   | — |   |
| Settlement Loss                                                                         |       | 140                                      |       | —                                   |       | — |   | — |   | — |   | — |   |
| Recognized net  actuarial loss                                                          |       | 144                                      |       | 121                                      |       | 141 |   | 366 |   | 346 |   | 533 |   |
| Net periodic  benefit cost                                                              |       | $                                        | 365        |                                     | $          | 338 |   | $ | 373 |   | $ | 958 |   | $ | 906 |   | $ | 1,203 |   |
| **Weighted-average assumptions**                                                        |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Discount rate for  benegit obligation                                                   |       | 5.2                                      | %          | 4.7                                      | %          | 5.3 | % | 5.8 | % | 5.5 | % | 5.5 | % |
| Discount rate for  net periodic benefit cost                                            |       | 4.7                                      | %          | 5.3                                      | %          | 5.6 | % | 5.5 | % | 5.5 | % | 6.0 | % |
| Expected long-term  rate of return on plan assets                                       |       | 6.5                                      | %          | 6.5                                      | %          | 7.0 | % | — |   | — |   | — |   |
| Varying rates of  interest in compensation levels based on age                          |       | 3.0                                      | %          | 3.0                                      | %          | 2.8 | % | — |   | — |   | — |   |

 

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The expected long-term rate of return on definedbenefit pension plan assets assumption is derived based on the historicalreturns achieved by the pension trust and anticipated future long-termperformance of individual assets classes. Consideration is also given to theappropriate investment strategy and anticipated future distribution of planassets between asset classes. While this analysis gives appropriateconsideration to recent trust performance and historical returns, theassumption represents a long-term prospective return.

Ourprincipal objective is to ensure that plan assets are sufficient to enable allfuture pension liabilities to be paid when due. Plan assets are allocated witha goal to achieve diversification between and within various asset classes tomeet long-term objectives of return, while mitigating against downside risksand considering expected cash flows. The asset allocations for the pensionassets at January 31, 2007 and 2006 are as follows:

| ** **              | ** ** | **Percentage of  Plan Assets  At January 31** | ** ** | ** ** | ** ** |
|-------------------------|------------|-------------------------------------------------------------------|------------|------------|------------|
| **Asset Category** | ** ** | ** **                                                        | ** ** | **2007**   | ** ** | **2006** | ** ** | **Target allocation** | ** ** |
| Equity                  |       |                                                              | 53         | %          |       |   | 53 | % |   |   | 53 | % |   |
| Debt                    |       |                                                              | 40         | %          |       |   | 45 | % |   |   | 40 | % |   |
| Real estate             |       |                                                              | 3          | %          |       |   | 2 | % |   |   | 3 | % |   |
| Cash                    |       |                                                              | 4          | %          |       |   | — |   |   |   | 4 | % |   |
|                         |            |                                                                   |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

Equity includes domestic and international equitysecurities, such as common, preferred or other capital stock, as well as mutualfunds. Debt includes domestic and international debt securities, such as U.S.and other foreign government securities, corporate bonds and commercial paper.

We determine the discount rate for the defined benefitpension plans and postretirement plan each year as of the measurement date,based on a review of interest rates associated with long-term high qualitycorporate bonds in the geographic region where the plan is maintained.

The accumulated benefit obligation is the actuarialpresent value of benefits attributed to employee services rendered to date,excluding assumptions about future compensation levels. The accumulated benefitobligation for all defined benefit pension plans was $9.8 million at January 31,2007 and $10.6 million at January 31, 2006. The minimum pensionliability, included in other long-term liabilities was $2.2 million and$3.4 million as of January 31, 2007 and 2006, respectively. The decreasein the liability in fiscal 2007 is the result of changes in assumptions, mainlyan increase in the discount rate.

We also provide a postretirement benefit plan,consisting of health care coverage to eligible retirees and qualifyingdependents in the United States. Benefits under this postretirement benefitplan are generally based on age at retirement and years of service. Thenet periodic cost of the postretirement plan is determined using the projectedunit credit method. Other significant actuarial assumptions include thediscount rate, health care cost trend rates (rate of growth for medical costs)and rates of retirement and life expectancy of plan participants. We determineour discount rate using a “yield curve expected benefit payment” methodology. Thismethodology uses individual curve rates to discount each future years’ expectedplan benefit payments. We are accruing the estimated future costs of providingpostretirement benefits to eligible active employees during the active serviceperiod. Our postretirement plan is not funded and we have no current plans toprovide funding other than annual contributions, which represent the benefitspaid for the year.

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Assumedhealth care cost trend rates have a significant effect on the amounts reportedfor our postretirement benefit plan. The assumed health care cost trend ratesused in measuring the APBO were as follows at January 31:

| ** **                                     | ** ** | **January 31** | ** ** |
|------------------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **2007**            | ** ** | **2006** | ** ** |
| Health care cost  trend rate assumed next year |       | 10                  | %          | 11 | % |
| Ultimate trend  rate                           |       | 4.5                 | %          | 4.5 | % |
| Year ultimate trend rate  is reached           |       | 2013                |       | 2013 |   |

 

Thefollowing presents the effect of a 1% change in health care cost trend rates atJanuary 31, 2007 (in thousands):

| ** **                                   | ** ** | **1%  Increase** | ** ** | **1%  Decrease** | ** ** |
|----------------------------------------------|------------|------------------|------------|------------------|------------|
| Change in health care  cost trend rate:      |       |             |       |             |       |   |   |   |   |
| Effect on service and interest costs         |       |             | $          | 72               |       |   |   | $ | (61 | ) |   |
| Effect on  postretirement benefit obligation |       |             | 905        |             |       |   | (768 | ) |   |
|                                              |            |                  |            |                  |            |  |  |  |  |  |  |

 

The fiscal 2008 postretirement benefit costs will bebased on a 5.75% discount rate.

The impact of adopting SFAS 158 during fiscal 2007increased the long-term employee benefit liability on our consolidated balancesheet by $1.0 million and decreased shareholders’ equity by $657,000, net oftax.

The amount in accumulated other comprehensive incomeexpected to be recognized as components of net periodic benefit costs in fiscal2008 include an actuarial loss of $86,000 for our defined benefit plans and anactuarial loss of $193,000 and a prior service credit of $77,000 for ourpostretirement plan.

Our expected contribution in fiscal 2008 to thedefined benefit pension plans is $393,000 and to the postretirement benefitplan is $362,000.

Thetable below reflects the estimated total pension benefits and otherpostretirement gross benefit payments to be paid from the plans over the nextten years (in thousands):

| ** **           | ** ** | ** ** | ** ** | **Postretirement Benefit** | ** ** |
|----------------------|------------|------------|------------|---------------------------------|------------|
| **Fiscal Year** | ** ** | ** ** | ** ** | **Defined Benefit**        | ** ** | **Gross Benefit  Payments** | ** ** | **Medicare  Subsidy** | ** ** |
| 2008                 |       |       | $          | 236                             |       |   |   | $ | 910 |   |   |   | $ | 113 |   |   |
| 2009                 |       |       | 234        |                            |       |   | 995 |   |   |   | 126 |   |   |
| 2010                 |       |       | 228        |                            |       |   | 1,147 |   |   |   | 139 |   |   |
| 2011                 |       |       | 265        |                            |       |   | 1,246 |   |   |   | 150 |   |   |
| 2012                 |       |       | 294        |                            |       |   | 1,348 |   |   |   | 167 |   |   |
| 2013 - 2017          |       |       | 1,531      |                            |       |   | 7,961 |   |   |   | 1,012 |   |   |
|                      |            |            |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Note 9—Share-BasedCompensation Plans**

We have granted two types of awards, stock options andstock appreciation rights (SARS), under our share-based compensation plans toofficers, key managers and directors. Stock options provide the holder theright to receive our common shares at an established price. SARS provide theholder the right to receive an amount, payable in our common shares, equal tothe excess of the market value of our common shares on the date of exercise(“intrinsic value”) over the base price at the time the right was granted. Thebase price may not be less than the market price of our common shares on thedate of grant. The prices for all awards are established by our Board ofDirectors’ Compensation Committee at the time the awards are granted. Allawards vest ratably over a four-year period and have a term of ten years.

We have reserved 1,400,000 shares of common stockunder our stock option plan. As of January 31, 2007 a total of 807,000shares have been issued upon the exercise of stock options. No additional stockoptions can be granted under the terms of the plan. The SARS plan provides forthe issuance of 750,000 shares of common stock upon the exercise of SARS ofwhich 69,000 shares have been issued at January 31, 2007. We issue newcommon shares upon the exercise of all awards.

Asummary of the Plan’s status at January 31, 2007, 2006, and 2005 togetherwith changes during the periods then ended are presented in the following table(in thousands, except per share amounts):

| ** **                        | ** ** | **Stock Options**      | ** ** | **Stock Appreciation Rights**                                | ** ** |
|-----------------------------------|------------|-----------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Outstanding**

**Awards** | ** ** | **Weighted Average**

**Exercise Price**

**Per Share** | ** ** | **Outstanding**

**Awards** | ** ** | **Weighted Average**

**Exercise Price**

**Per Share** | ** ** |
| Balance at  January 31, 2004 |       |                        | 1,192      |                                                                   |       |   | $ | 13.16 |   |   |   | — |   |   |   | $ | — |   |   |
| Granted                           |       |                        | 122        |                                                                   |       |   | 21.15 |   |   |   | 453 |   |   |   | 21.15 |   |   |
| Exercised                         |       |                        | (123       | )                                                                      |       |   | 13.36 |   |   |   | — |   |   |   | — |   |   |
| Forfeited                         |       |                        | (6         | )                                                                      |       |   | 13.14 |   |   |   | (5 | ) |   |   | 21.15 |   |   |
| Balance at January 31, 2005  |       |                        | 1,185      |                                                                   |       |   | 13.96 |   |   |   | 448 |   |   |   | 21.15 |   |   |
| Granted                           |       |                        | —     |                                                                   |       |   | — |   |   |   | 612 |   |   |   | 35.60 |   |   |
| Exercised                         |       |                        | (325       | )                                                                      |       |   | 13.64 |   |   |   | (41 | ) |   |   | 21.15 |   |   |
| Forfeited                         |       |                        | (19        | )                                                                      |       |   | 13.22 |   |   |   | — |   |   |   | — |   |   |
| Balance at January 31, 2006  |       |                        | 841        |                                                                   |       |   | 14.10 |   |   |   | 1,019 |   |   |   | 29.83 |   |   |
| Granted                           |       |                        | —     |                                                                   |       |   | — |   |   |   | 255 |   |   |   | 37.05 |   |   |
| Exercised                         |       |                        | (246       | )                                                                      |       |   | 14.47 |   |   |   | (126 | ) |   |   | 28.65 |   |   |
| Forfeited                         |       |                        | (25        | )                                                                      |       |   | 17.76 |   |   |   | (117 | ) |   |   | 31.57 |   |   |
| Balance at  January 31, 2007 |       |                        | 570        |                                                                   |       |   | $ | 13.79 |   |   |   | 1,031 |   |   |   | $ | 31.56 |   |   |

 

Thefollowing table presents all share-based compensation costs recognized in ourstatements of income (in thousands):

| ** **                                           | ** ** | **Year ended January 31** | ** ** |
|------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| Method used to  account for share-based compensation |       | Fair Value                               |       | Fair Value/Intrinsic |   | Intrinsic |   |
| Share-based  compensation under SFAS 123R            |       | $                                        | 4,033      |   | $ | 2,506 |   | $ | — |   |
| Share-based  compensation under FIN 28               |       | —                                   |       | (228 | ) | 2,493 |   |
|                                                 |       | $                                        | 4,033      |   | $ | 2,278 |   | $ | 2,493 |   |
| Tax benefit recognized                               |       | $                                        | 1,118      |   | $ | 582 |   | $ | 822 |   |

 

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Asummary of award activity under the Plans as of January 31, 2007, ispresented below:

| ** **                                                 | ** ** | ** **              | ** ** | ** **    | ** ** | ** **              | ** ** | **Weighted-**    | ** ** |
|------------------------------------------------------------|------------|-------------------------|------------|---------------|------------|-------------------------|------------|------------------|------------|
| ** **                                                 | ** ** | ** **              | ** ** | **Aggregate** | ** ** | **Average**             | ** ** | **Average**      | ** ** |
| ** **                                                 | ** ** | ** **              | ** ** | **Exercise**  | ** ** | **Intrinsic**           | ** ** | **Contractural** | ** ** |
| ** **                                                 | ** ** | **Awards**              | ** ** | **Price**     | ** ** | **Value**               | ** ** | **Life**         | ** ** |
| ** **                                                 | ** ** | **(In thousands)** | ** ** | ** **    | ** ** | **(In thousands)** | ** ** | ** **       | ** ** |
| Outstanding at  January 31, 2007                      |       |                    | 1,601      |          |       |                    | $          | 25.27            |       |   |   | $ | 45,549 |   |   |   | 7 |   |   |
| Outstanding at  January 31, 2007 and expected to vest |       |                    | 833        |          |       |                    | $          | 30.70            |       |   |   | $ | 19,177 |   |   |   | 8 |   |   |
| Exercisable at  January 31, 2007                      |       |                    | 663        |          |       |                    | $          | 17.50            |       |   |   | $ | 24,012 |   |   |   | 6 |   |   |

 

The total intrinsic value of options exercised duringthe years ended January 31, 2007 and 2006 was $8.4 million and $10.3million, respectively. The total intrinsic value of SARS exercised during theyears ended January 31, 2007 and 2006 was $2.2 million and $1.0 million,respectively.

Asummary of the status of the Plans’ nonvested awards as of January 31,2007 is presented below:

| ** **                          | ** ** | ** **                | ** ** | **Weighted Average**               | ** ** |
|-------------------------------------|------------|---------------------------|------------|-----------------------------------------|------------|
| ** **                          | ** ** | ** **                | ** ** | **Grant-Date**                          | ** ** |
| ** **                          | ** ** | **Nonvested Awards** | ** ** | **Fair Value Per Award** | ** ** |
| ** **                          | ** ** | **(In thousands)**   | ** ** | ** **                              | ** ** |
| Nonvested at  January 31, 2006 |       |                      | 1,247      |                                    |       |   | $ | 11.20 |   |   |
| Granted                             |       |                      | 255        |                                    |       |   | 15.24 |   |   |
| Vested                              |       |                      | (424       | )                                       |       |   | 9.65 |   |   |
| Forfeited                           |       |                      | (140       | )                                       |       |   | 12.28 |   |   |
| Nonvested at  January 31, 2007 |       |                      | 938        |                                    |       |   | $ | 12.84 |   |   |

 

As of January 31, 2007, there was $9.5 million oftotal unrecognized compensation cost related to nonvested share-basedcompensation awards granted under the Plans. That cost is expected to berecognized over a weighted average period of 2.6 years. The following tablerepresents as of January 31, 2007 the share-based compensation costs to berecognized in future periods (in thousands) for awards granted to date:

| **Fiscal Year** | ** ** | ** ** | ** ** | **Amount** | ** ** |
|----------------------|------------|------------|------------|------------|------------|
| 2008                 |       |       | $          | 4,087      |       |   |
| 2009                 |       |       | 3,336      |       |       |
| 2010                 |       |       | 1,734      |       |       |
| 2011                 |       |       | 305        |       |       |
|                 |       |       | $          | 9,462      |       |   |

 

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**Note 10—EarningsPer Share**

Thefollowing table presents the calculation of basic and diluted earnings pershare (in thousands, except per share amounts):

| ** **                                                   | ** ** | **Year Ended January 31** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                   | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| Basic earnings per  share:                                   |       |                                     |       |   |   |   |   |
| Net income                                                   |       | $                                        | 45,481     |   | $ | 42,051 |   | $ | 28,490 |   |
| Weighted average shares of common stock outstanding          |       | 12,505                                   |       | 12,354 |   | 12,164 |   |
|                                                         |       | $                                        | 3.64       |   | $ | 3.40 |   | $ | 2.34 |   |
| Diluted earnings  per share:                                 |       |                                     |       |   |   |   |   |
| Net income                                                   |       | $                                        | 45,481     |   | $ | 42,051 |   | $ | 28,490 |   |
| Weighted average shares of common stock outstanding          |       | 12,505                                   |       | 12,354 |   | 12,164 |   |
| Dilutive effect of stock options                             |       | 566                                      |       | 496 |   | 562 |   |
| Diluted weighted average shares of common stock  outstanding |       | 13,071                                   |       | 12,850 |   | 12,726 |   |
|                                                         |       | $                                        | 3.48       |   | $ | 3.27 |   | $ | 2.24 |   |

 

Basic earnings per shareis based on the weighted average number of common shares outstanding for theperiod. Diluted weighted average common shares includes the incremental sharesthat would be issued upon the assumed exercise of stock options and stockappreciation rights. Unexercised SARS totaling 381,000 awards were excludedfrom the fiscal 2007 calculation of diluted earnings per share because theywere antidilutive. All stock options are included in our calculation ofincremental shares because they are dilutive.

**Note 11—DerivativeInstruments and Hedging Activities**

We have operations and sell products to dealers andoriginal equipment manufacturers throughout the world. Our activities expose usto a variety of market risks, including the effects of changes in foreigncurrency exchange rates. These financial exposures are monitored and managedwithin our foreign exchange management policy as approved by the Board ofDirectors. Our risk-management program focuses on the unpredictability offinancial markets and seeks to reduce the effects that the volatility of thesemarkets may have on our operating results.

We maintain a foreign currency risk-management strategythat uses derivative instruments to protect our interests from unanticipatedfluctuations in earnings caused by volatility in foreign currency exchangerates. Various amounts of our payables, receivables and subsidiary royaltiesare denominated in foreign currencies, thereby creating exposures to changes inexchange rates.

We purchase foreign currency forward exchangecontracts with contract terms lasting up to six months, but generally less thanone month, to protect against the adverse effects that exchange ratefluctuations may have on foreign currency denominated receivables and payables.These derivatives do not qualify for hedge accounting, in accordance with SFAS No. 133“Accounting for Derivative Instruments and Hedging Activities.” The gains andlosses on both the derivatives and the foreign currency denominated receivablesand payables are recorded as transaction adjustments in current earningsthereby minimizing the effect on current earnings of exchange-rate fluctuations.During the year ended January 31, 2007, foreign currency gains included inother income and expense on the statement of income were $1.1 million. Duringthe years ended 2006 and 2005, foreign currency losses, included in otherincome and expense on the statements of income, were $120,000 and $640,000,respectively.

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By using derivative financial instruments to hedgeexposures to changes in exchange rates, we expose ourselves to credit risk andmarket risk. Credit risk is the failure of the counterparty to perform underthe terms of the derivatives contract. When the fair value of a derivativecontract is positive, the counterparty owes us, which creates repayment riskfor us. When the fair value of a derivative contract is negative, we owe thecounterparty and, therefore, it does not possess repayment risk. We minimizethe credit or repayment risk in derivative instruments by entering intotransactions with counterparties whose credit ratings are AA or higher,monitoring the amount of exposure to each counterparty and monitoring thefinancial condition of our counterparties.

Market risk is the adverse effect on the value of aforeign exchange contract that results from a change in the underlying exchangerates. The market risk associated with these foreign exchange risks is managedby only hedging actual exposures. Any change in value of the foreign exchangecontract due to exchange rate change is offset by the change in value of theunderlying asset being hedged due to exchange rate change.

At January 31, 2007and 2006, we had approximately $44.3 million and $39.8 million, respectively,nominal value of contracts in place to buy or sell foreign currency. The fairvalue of these contracts at January 31, 2007 and 2006 is not materiallydifferent than the nominal value. The difference between the nominal and fairvalue is recorded in the consolidated financial statements as an unrealizedforeign currency gain or loss. The principal currencies hedged are denominatedin Japanese yen, Canadian dollars, Euros and British pounds.

**Note 12—Commitmentsand Contingencies**

**EnvironmentalMatters**

We are subject to environmental laws and regulations,which include obligations to remove or mitigate environmental effects of pastdisposal and release of certain wastes and substances at various sites. Werecord liabilities for affected sites when environmental assessments indicateprobable cleanup and the costs can be reasonably estimated. Other than forcosts of assessments themselves, the timing and amount of these liabilities isdetermined based on the estimated costs of remediation activities and ourcommitment to a formal plan of action, such as an approved remediation plan.The reliability and precision of the loss estimates are affected by numerousfactors, such as different stages of site evaluation and reevaluation of thedegree of remediation required. We adjust our liabilities as new remediationrequirements are defined, as information becomes available permittingreasonable estimates to be made and to reflect new and changing facts.

It is reasonably possible that changes in estimateswill occur in the near term and the related adjustments to environmentalliabilities may have a material impact on our net income. Unasserted claims arenot currently reflected in our environmental remediation liabilities. It isalso reasonably possible that these claims may also have a material impact onour net income if asserted. We cannot estimate at this time the amount of anyadditional loss or range of loss that is reasonably possible.

Our specific environmentalmatters consist of the following:

**Fairview, Oregon**

In 1996, the OregonDepartment of Environmental Quality issued two Records of Decision impactingour Fairview, Oregon manufacturing facility. The records of decision requiredus to initiate remedial activities related to the cleanup of groundwatercontamination at and near the facility. Remediation activities have beenconducted at or near the facility since 1996 and current estimates provide forsome level of activity to continue through 2019. Costs of certain remediationactivities at the facility are shared with The Boeing Company, with Cascadepaying 70% of these costs. The recorded liability for the ongoing 

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remediationactivities at our Fairview facility was $5.9 million and $6.7 million at January 31,2007 and 2006, respectively.

**Springfield, Ohio**

In 1994, we entered into a consent order with the OhioEnvironmental Protection Agency, which required the installation of remediationsystems for the cleanup of groundwater contamination at our Springfield, Ohiofacility. The current estimate is that the remediation activities will continuethrough 2013. The recorded liability for ongoing remediation activities inSpringfield was $1.0 million and $1.1 million at January 31, 2007 and2006, respectively.

Presentedbelow is a rollforward of our environmental liabilities and expenses for thethree years ended January 31, 2007 (in thousands):

| ** **                        | ** ** | **Fairview** | ** ** | **Springfield** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|--------------|------------|-----------------|------------|-----------|------------|-----------|------------|
| Balance at  January 31, 2004 |       |         | $          | 8,294           |       |      |       | $         | 1,104      |   |   | $ | — |   | $ | 9,398 |   |
| Accrued                           |       |         | —     |            |       |      | 155        |      |       | 146 |   | 301 |   |
| Cash payments                     |       |         | (833       | )               |       |      | (173       | )         |       | — |   | (1,006 | ) |
| Balance at January 31, 2005  |       |         | $          | 7,461           |       |      |       | $         | 1,086      |   |   | $ | 146 |   | $ | 8,693 |   |
| Accrued                           |       |         | (259       | )               |       |      | 259        |      |       | — |   | — |   |
| Cash payments                     |       |         | (541       | )               |       |      | (207       | )         |       | (10 | ) | (758 | ) |
| Balance at January 31, 2006  |       |         | $          | 6,661           |       |      |       | $         | 1,138      |   |   | $ | 136 |   | $ | 7,935 |   |
| Accrued                           |       |         | —     |            |       |      | —     |      |       | (136 | ) | (136 | ) |
| Cash payments                     |       |         | (786       | )               |       |      | (151       | )         |       | — |   | (937 | ) |
| Balance at  January 31, 2007 |       |         | $          | 5,875           |       |      |       | $         | 987        |   |   | $ | — |   | $ | 6,862 |   |

 

**Lease Commitments**

Welease certain facilities and equipment under noncancelable operating leases.Rent expense for the years ended January 31, 2007, 2006, and 2005 totaled$2.5 million, $2.4 million and $1.8 million, respectively. Futureminimum rental commitments under these leases as of January 31, 2007 areas follows (in thousands):

| 2008   |   | $     | 2,887  |   |
|--------|--------|-------|--------|--------|
| 2009   |   | 2,471 |   |
| 2010   |   | 1,818 |   |
| 2011   |   | 1,234 |   |
| 2012   |   | 620   |   |
|   |   | $     | 9,030  |   |

 

**Legal Proceedings**

We are subject to legalproceedings, claims and litigation, in addition to the environmental matterspreviously discussed, arising in the ordinary course of business. While theoutcome of these matters is currently not determinable, management does notexpect the ultimate costs to resolve these matters will have a material adverseeffect on our consolidated financial position, result of operations, or cashflows.

58

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**Note 13—FairValue of Financial Assets and Liabilities**

Thefair value of our financial instruments represents the amount at which theinstrument could be exchanged in a current transaction between willing parties,other than in a forced sale or liquidation. The carrying amount of our cash andcash equivalents, marketable securities, trade receivables and payables andnotes payable to banks approximates fair value due to the short maturity ofthese instruments. Fair value of long-term debt is estimated based either onquoted market prices for similar issues or on current rates offered to us fordebt of the same remaining maturities. The estimated fair values of ourfinancial liabilities for which the carrying amount does not approximate fairvalue is as follows:

| ** **                                 | ** ** | **January 31**     | ** ** |
|--------------------------------------------|------------|-------------------------|------------|
| ** **                                 | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                                 | ** ** | **Fair  Value**         | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** | **Carrying  Amount** | ** ** |
| ** **                                 | ** ** | **(In thousands)** | ** ** |
| Long-term debt,  including current portion |       | $                       | 46,787     |   | $ | 46,573 |   | $ | 25,828 |   | $ | 25,181 |   |
|                                            |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 

**Note 14—SegmentInformation**

Our operating units have several economiccharacteristics and attributes, including similar products, distributionpatterns and classes of customers. As a result, we aggregate our operatingunits into four geographic operating segments related to the manufacturing,distribution and servicing of material handling load engagement productsprimarily for the lift truck industry. We evaluate performance of each of ouroperating segments based on income before interest, miscellaneousincome/expense and income taxes. The accounting policies of the operatingsegments are the same as those described in the summary of accounting policies.

Revenuesand operating results are classified according to the country of origin.Identifiable assets are attributed to the geographic location in which they arelocated. Net sales, operating results and identifiable assets by geographicregion were as follows (in thousands):
|                                       | ** ** | **Year Ended January 31** | ** ** |
|---------------------------------------|------------|------------------------------------------|------------|
| **2007**                              | ** ** | ** **                               | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                             |       |                                     | $          | 263,312 |   |   | $ | 137,755 |   |   | $ | 48,256 |   |   | $ | 29,527 |   |   | $ | — |   |   |   | $ | 478,850 |   |   |
| Transfers between  areas              |       |                                     | 25,367     |   |   | 1,468 |   |   | 220 |   |   | 7,853 |   |   | (34,908 | ) |   |   | — |   |   |
| Net sales and  transfers              |       |                                     | $          | 288,679 |   |   | $ | 139,223 |   |   | $ | 48,476 |   |   | $ | 37,380 |   |   | $ | (34,908 | ) |   |   | $ | 478,850 |   |   |
| Gross Profit                          |       |                                     | $          | 102,810 |   |   | $ | 22,641 |   |   | $ | 12,093 |   |   | $ | 12,436 |   |   |   |   |   |   | $ | 149,980 |   |   |
| Selling and  administrative           |       |                                     | 46,015     |   |   | 23,371 |   |   | 8,225 |   |   | 3,098 |   |   |   |   |   |   | 80,709 |   |   |
| Loss (gain) on  disposition of assets |       |                                     | 16         |   |   | (588 | ) |   | (17 | ) |   | 37 |   |   |   |   |   |   | (552 | ) |   |
| Amortization                          |       |                                     | 598        |   |   | 851 |   |   | 19 |   |   | 4 |   |   |   |   |   |   | 1,472 |   |   |
| Operating income  (loss)              |       |                                     | $          | 56,181 |   |   | $ | (993 | ) |   | $ | 3,866 |   |   | $ | 9,297 |   |   |   |   |   |   | $ | 68,351 |   |   |
| Total assets                          |       |                                     | $          | 213,451 |   |   | $ | 114,660 |   |   | $ | 31,323 |   |   | $ | 37,998 |   |   |   |   |   |   | $ | 397,432 |   |   |
| Property, plant  and equipment, net   |       |                                     | $          | 34,378 |   |   | $ | 35,300 |   |   | $ | 1,642 |   |   | $ | 12,831 |   |   |   |   |   |   | $ | 84,151 |   |   |
| Capital  expenditures                 |       |                                     | $          | 6,174 |   |   | $ | 2,469 |   |   | $ | 481 |   |   | $ | 8,954 |   |   |   |   |   |   | $ | 18,078 |   |   |
| Depreciation expense                  |       |                                     | $          | 7,899 |   |   | $ | 4,968 |   |   | $ | 387 |   |   | $ | 499 |   |   |   |   |   |   | $ | 13,753 |   |   |
|                                       |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

59

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|                                       | ** ** | **Year Ended January 31** | ** ** |
|---------------------------------------|------------|------------------------------------------|------------|
| **2006**                              | ** ** | ** **                               | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                             |       |                                     | $          | 250,576 |   |   | $ | 132,213 |   |   | $ | 45,471 |   |   | $ | 22,243 |   |   | $ | — |   |   |   | $ | 450,503 |   |   |
| Transfers between  areas              |       |                                     | 22,461     |   |   | 2,616 |   |   | 177 |   |   | 5,652 |   |   | (30,906 | ) |   |   | — |   |   |
| Net sales and  transfers              |       |                                     | $          | 273,037 |   |   | $ | 134,829 |   |   | $ | 45,648 |   |   | $ | 27,895 |   |   | $ | (30,906 | ) |   |   | $ | 450,503 |   |   |
| Gross Profit                          |       |                                     | $          | 97,869 |   |   | $ | 23,746 |   |   | $ | 12,394 |   |   | $ | 8,720 |   |   |   |   |   |   | $ | 142,729 |   |   |
| Selling and  administrative           |       |                                     | 44,672     |   |   | 22,033 |   |   | 7,803 |   |   | 2,499 |   |   |   |   |   |   | 77,007 |   |   |
| Loss (gain) on  disposition of assets |       |                                     | 4          |   |   | 441 |   |   | (65 | ) |   | 5 |   |   |   |   |   |   | 385 |   |   |
| Amortization                          |       |                                     | 151        |   |   | 1,264 |   |   | — |   |   | 28 |   |   |   |   |   |   | 1,443 |   |   |
| Operating income                      |       |                                     | $          | 53,042 |   |   | $ | 8 |   |   | $ | 4,656 |   |   | $ | 6,188 |   |   |   |   |   |   | $ | 63,894 |   |   |
| Total assets                          |       |                                     | $          | 196,078 |   |   | $ | 110,785 |   |   | $ | 30,751 |   |   | $ | 23,669 |   |   |   |   |   |   | $ | 361,283 |   |   |
| Property, plant  and equipment, net   |       |                                     | $          | 34,302 |   |   | $ | 35,336 |   |   | $ | 1,567 |   |   | $ | 4,169 |   |   |   |   |   |   | $ | 75,374 |   |   |
| Capital  expenditures                 |       |                                     | $          | 5,923 |   |   | $ | 3,189 |   |   | $ | 336 |   |   | $ | 1,132 |   |   |   |   |   |   | $ | 10,580 |   |   |
| Depreciation expense                  |       |                                     | $          | 8,032 |   |   | $ | 5,752 |   |   | $ | 412 |   |   | $ | 366 |   |   |   |   |   |   | $ | 14,562 |   |   |
|                                       |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                                                        | ** ** | **Year Ended January 31** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------|------------|
| **2005**                                               | ** ** | ** **                               | ** ** | **North America** | ** ** | **Europe** | ** ** | **Asia Pacific** | ** ** | **China** | ** ** | **Eliminations** | ** ** | **Consolidation** | ** ** |
| Net sales                                              |       |                                     | $          | 208,553 |   |   | $ | 118,723 |   |   | $ | 39,095 |   |   | $ | 19,348 |   |   | $ | — |   |   |   | $ | 385,719 |   |   |
| Transfers between  areas                               |       |                                     | 21,225     |   |   | 1,918 |   |   | 28 |   |   | 3,608 |   |   | (26,779 | ) |   |   | — |   |   |
| Net sales and  transfers                               |       |                                     | $          | 229,778 |   |   | $ | 120,641 |   |   | $ | 39,123 |   |   | $ | 22,956 |   |   | $ | (26,779 | ) |   |   | $ | 385,719 |   |   |
| Gross Profit                                           |       |                                     | $          | 80,378 |   |   | $ | 23,629 |   |   | $ | 11,195 |   |   | $ | 7,980 |   |   |   |   |   |   | $ | 123,182 |   |   |
| Selling and  administrative(1)     |       |                                     | 42,516     |   |   | 23,574 |   |   | 6,813 |   |   | 1,841 |   |   |   |   |   |   | 74,744 |   |   |
| Loss (gain) on  disposition of assets                  |       |                                     | 70         |   |   | (71 | ) |   | (2 | ) |   | 6 |   |   |   |   |   |   | 3 |   |   |
| Amortization                                           |       |                                     | 145        |   |   | 485 |   |   | — |   |   | 28 |   |   |   |   |   |   | 658 |   |   |
| Operating income  (loss)                               |       |                                     | $          | 37,647 |   |   | $ | (359 | ) |   | $ | 4,384 |   |   | $ | 6,105 |   |   |   |   |   |   | $ | 47,777 |   |   |
| Total assets                                           |       |                                     | $          | 167,118 |   |   | $ | 114,948 |   |   | $ | 28,580 |   |   | $ | 17,446 |   |   |   |   |   |   | $ | 328,092 |   |   |
| Property, plant  and equipment, net                    |       |                                     | $          | 36,084 |   |   | $ | 41,004 |   |   | $ | 1,626 |   |   | $ | 3,313 |   |   |   |   |   |   | $ | 82,027 |   |   |
| Capital  expenditures                                  |       |                                     | $          | 8,101 |   |   | $ | 4,640 |   |   | $ | 301 |   |   | $ | 539 |   |   |   |   |   |   | $ | 13,581 |   |   |
| Depreciation expense                                   |       |                                     | $          | 7,585 |   |   | $ | 5,612 |   |   | $ | 356 |   |   | $ | 359 |   |   |   |   |   |   | $ | 13,912 |   |   |
|                                                        |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)          Includes $1.3 million ofincome from insurance litigation recovery and $155,000 of environmentalexpenses in North America.

Thefollowing table represents sales by place of destination:

| ** **                                                  | ** ** | **Year Ended January 31** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                  | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                  | ** ** | **(In thousands)**                  | ** ** |
| United States                                               |       | $                                        | 229,438    |   | $ | 215,815 |   | $ | 180,097 |   |
| Europe, excluding  United Kingdom                           |       | 102,329                                  |       | 102,265 |   | 92,236 |   |
| United Kingdom                                              |       | 27,955                                   |       | 27,113 |   | 23,374 |   |
| China                                                       |       | 27,703                                   |       | 20,414 |   | 17,600 |   |
| Canada                                                      |       | 25,605                                   |       | 26,694 |   | 20,960 |   |
| Other countries  (less then 5% of total sales individually) |       | 65,820                                   |       | 58,202 |   | 51,452 |   |
|                                                        |       | $                                        | 478,850    |   | $ | 450,503 |   | $ | 385,719 |   |

 

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**Note 15—WarrantyObligations**

Ourwarranty obligations, which are recorded in other accrued expenses on theconsolidated balance sheet, are as follows:

| ** **                                        | ** ** | **January 31**     | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **                                        | ** ** | **(In thousands)** | ** ** |
| Beginning  obligation                             |       | $                       | 1,665      |   | $ | 1,911 |   |
| Accruals for  warranties issued during the period |       | 2,583                   |       | 2,168 |   |
| Accruals for  pre-existing warranties             |       | (12                     | )          | 52 |   |
| Settlements  during the year                      |       | (2,481                  | )          | (2,466 | ) |
| Ending obligation                                 |       | $                       | 1,755      |   | $ | 1,665 |   |

 

**Note 16—Goodwill**

Duringfiscal 2007, goodwill increased $22.0 million due to the acquisition of PSM. SeeNote 18—“Acquisitions” for further details on the PSM acquisition. Theremaining difference is due to the fluctuation of foreign currencies. We haveno goodwill in China. The following table provides a breakdown of goodwill bygeographic region:

| ** **    | ** ** | **January 31**     | ** ** |
|---------------|------------|-------------------------|------------|
| ** **    | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **    | ** ** | **(In thousands)** | ** ** |
| North America |       | $                       | 85,903     |   | $ | 65,978 |   |
| Europe        |       | 10,598                  |       | 9,840 |   |
| Asia Pacific  |       | 2,997                   |       | 3,002 |   |
|          |       | $                       | 99,498     |   | $ | 78,820 |   |

 

**Note 17—Supplementary Quarterly FinancialInformation (unaudited)**
|                                   | ** ** | **1st Quarter**                                                  | ** ** | **2nd Quarter** | ** ** | **3rd Quarter** | ** ** | **4th Quarter** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                        | ** ** | **(In thousands, except per share amounts)** | ** ** |
| Year ended  January 31, 2007 |       |                                                                  |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |   |   |
| Net sales                         |       |                                                                  | $          | 117,774              |       |                 |       | $                    | 119,376    |   |   |   | $ | 122,809 |   |   |   | $ | 118,891 |   |   |
| Gross profit                      |       |                                                                  | $          | 36,689               |       |                 |       | $                    | 38,353     |   |   |   | $ | 39,453 |   |   |   | $ | 35,485 |   |   |
| Operating income                  |       |                                                                  | $          | 17,197               |       |                 |       | $                    | 18,106     |   |   |   | $ | 19,210 |   |   |   | $ | 13,838 |   |   |
| Net income                        |       |                                                                  | $          | 11,034               |       |                 |       | $                    | 11,923     |   |   |   | $ | 12,283 |   |   |   | $ | 10,241 |   |   |
| Net income per  share:            |       |                                                                  |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |   |   |
| Basic                             |       |                                                                  | $          | 0.88                 |       |                 |       | $                    | 0.95       |   |   |   | $ | 0.97 |   |   |   | $ | 0.83 |   |   |
| Diluted                           |       |                                                                  | $          | 0.84                 |       |                 |       | $                    | 0.91       |   |   |   | $ | 0.94 |   |   |   | $ | 0.80 |   |   |
| Year ended  January 31, 2006 |       |                                                                  |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |   |   |
| Net sales                         |       |                                                                  | $          | 114,515              |       |                 |       | $                    | 114,966    |   |   |   | $ | 112,599 |   |   |   | $ | 108,423 |   |   |
| Gross profit                      |       |                                                                  | $          | 37,488               |       |                 |       | $                    | 36,570     |   |   |   | $ | 36,825 |   |   |   | $ | 31,846 |   |   |
| Operating income                  |       |                                                                  | $          | 19,222               |       |                 |       | $                    | 16,875     |   |   |   | $ | 17,165 |   |   |   | $ | 10,632 |   |   |
| Net income                        |       |                                                                  | $          | 12,208               |       |                 |       | $                    | 10,750     |   |   |   | $ | 10,828 |   |   |   | $ | 8,265 |   |   |
| Net income per  share:            |       |                                                                  |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |   |   |
| Basic                             |       |                                                                  | $          | 1.00                 |       |                 |       | $                    | 0.87       |   |   |   | $ | 0.87 |   |   |   | $ | 0.66 |   |   |
| Diluted                           |       |                                                                  | $          | 0.95                 |       |                 |       | $                    | 0.84       |   |   |   | $ | 0.84 |   |   |   | $ | 0.63 |   |   |

 

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**Note 18—Acquisitions**

During fiscal 2007, we purchased the assets of PSM, amanufacturer of construction attachments located in Woodinville, Washington. Thetotal purchase price for the assets was approximately $40.3 million, netof assumed liabilities.

During fiscal 2005, wepurchased the assets of Falkenroth Foerdertechnik (Falkenroth), a major Germanfork manufacturer. Falkenroth was placed into insolvency by its creditors in March 2004.The total purchase price for the assets was approximately $6.2 million, net ofassumed liabilities.

**Note 19—Accumulated Other Comprehensive Income(Loss)**

| ** **                                                                       | ** ** | **Accumulated Other Comprehensive Income (Loss)** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **Translation  Adjustment**                                           | ** ** | **Minimum  Pension/Postretirement  Liability Adjustment** | ** ** | **Total** | ** ** |
| ** **                                                                       | ** ** | **(In thousands)**                                               | ** ** |
| Balance at  January 31, 2004                                                |       |                                                                  | $          | 3,340 |   |   |   | $ | (2,309 | ) |   | $ | 1,031 |   |
| Translation adjustment                                                           |       |                                                                  | 6,735      |   |   |   | — |   |   | 6,735 |   |
| Balance at  January 31, 2005                                                |       |                                                                  | 10,075     |   |   |   | (2,309 | ) |   | 7,766 |   |
| Translation adjustment                                                           |       |                                                                  | 592        |   |   |   | — |   |   | 592 |   |
| Minimum pension  liability adjustment, net of tax benefit  of $393               |       |                                                                  | —     |   |   |   | (677 | ) |   | (677 | ) |
| Balance at  January 31, 2006                                                |       |                                                                  | 10,667     |   |   |   | (2,986 | ) |   | 7,681 |   |
| Translation adjustment                                                           |       |                                                                  | 4,008      |   |   |   | — |   |   | 4,008 |   |
| Minimum pension/postretirement  liability adjustment, net of tax benefit of $360 |       |                                                                  | —     |   |   |   | 605 |   |   | 605 |   |
| Balance at January 31, 2007                                                 |       |                                                                  | $          | 14,675 |   |   |   | $ | (2,381 | ) |   | $ | 12,294 |   |

 

**Note 20—Intangible Assets**

| ** **               | ** ** | **January 31**     | ** ** |
|--------------------------|------------|-------------------------|------------|
| ** **               | ** ** | **2007**                | ** ** | **2006** | ** ** |
| ** **               | ** ** | **(In thousands)** | ** ** |
| Customer relationships   |       | $                       | 13,390     |   | $ | 2,053 |   |
| Intellectual property    |       | 4,617                   |       | 739 |   |
| Other                    |       | 2,407                   |       | 1,881 |   |
| ** **               |       | 20,414                  |       | 4,673 |   |
| Accumulated amortization |       | (3,388                  | )          | (2,486 | ) |
|                     |       | $                       | 17,026     |   | $ | 2,187 |   |

 

During fiscal 2007, intangible assets increased $16.1million due to the acquisition of PSM. The PSM intangible assets includedcustomer relationships, intellectual property, and other intangibles of $11.8 million,$3.9 million and $400,000, respectively. Amortization expense for the yearsended January 31, 2007, 2006 and 2006, was $1.5 million, $1.4 million, and$700,000, respectively.

62

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Thefollowing table represents future amortization expense as of January 31,2007 (in thousands):

| **Year ended January 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|
| 2008                                     |       | $          | 2,586      |       |
| 2009                                     |       | 1,931      |       |
| 2010                                     |       | 1,864      |       |
| 2011                                     |       | 1,666      |       |
| 2012                                     |       | 1,647      |       |
| Thereafter                               |       | 7,332      |       |
|                                     |       | $          | 17,026     |       |

 

**Note 21—SubsequentEvent**

On April 9, 2007, we entered into a settlementagreement with Employers Reinsurance Corporation with respect to litigation torecover various expenses incurred in connection with environmental and relatedproceedings. The recovery from the settlement, which is expected to approximate$15.5 million, net of expenses, will be recorded in our consolidatedfinancial statements for the first quarter of fiscal 2008. This concludes alllitigation against our insurance companies with regards to environmentalmatters.

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**Schedule II**

**Cascade Corporation**

**Valuationand Qualifying Accounts(In thousands)**

| ** Column A**                        | ** ** | **Column B**     | ** ** | **Column C**   | ** ** | **Column D** | ** ** | **Column E**   | ** ** |
|------------------------------------------------|------------|-----------------------|------------|---------------------|------------|-------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **Balance at**   | ** ** | **Charged to** | ** ** | ** **        | ** ** | ** **          | ** ** |
| ** **                                     | ** ** | **Beginning of** | ** ** | **Costs and**  | ** ** | ** **        | ** ** | **Balance at** | ** ** |
| **Description**                                | ** ** | ** **            | ** ** | **Period**          | ** ** | **Expenses**      | ** ** | **Deductions**      | ** ** | **End of Period** | ** ** |
| Years ended  January 31:                  |       |                  |       |                |       |              |       |                |       |   |   |   |   |   |   |   |   |
| 2007                                           |       |                  |       |                |       |              |       |                |       |   |   |   |   |   |   |   |   |
| Allowance for  doubtful accounts receivable    |       |                  | $          | 1,415               |       |              |       | $                   | 291        |   |   |   | $ | (191 | ) |   |   | $ | 1,515 |   |   |
| Valuation  allowances—deferred tax assets |       |                  | $          | 9,603               |       |              |       | $                   | 1,219      |   |   |   | $ | (2,070 | ) |   |   | $ | 8,752 |   |   |
| 2006                                           |       |                  |       |                |       |              |       |                |       |   |   |   |   |   |   |   |   |
| Allowance for  doubtful accounts receivable    |       |                  | $          | 2,182               |       |              |       | $                   | 129        |   |   |   | $ | (896 | ) |   |   | $ | 1,415 |   |   |
| Valuation  allowances—deferred tax assets |       |                  | $          | 11,437              |       |              |       | $                   | 1,283      |   |   |   | $ | (3,117 | ) |   |   | $ | 9,603 |   |   |
| 2005                                           |       |                  |       |                |       |              |       |                |       |   |   |   |   |   |   |   |   |
| Allowance for  doubtful accounts receivable    |       |                  | $          | 2,023               |       |              |       | $                   | 571        |   |   |   | $ | (412 | ) |   |   | $ | 2,182 |   |   |
| Valuation allowances—deferred  tax assets |       |                  | $          | 9,525               |       |              |       | $                   | 2,057      |   |   |   | $ | (145 | ) |   |   | $ | 11,437 |   |   |
|                                                |            |                       |            |                     |            |                   |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Item 9.**                        ChangesIn and Disagreements With Accountants on Accounting and Financial Disclosure

None.

**Item 9A.**                Controlsand Procedures

**Evaluation of Disclosure Controls and Procedures**

Our management hasevaluated, under the supervision and with the participation of our chiefexecutive officer and chief financial officer, the effectiveness of ourdisclosure controls and procedures as of the end of the period covered by thisreport pursuant to Rule 13a-15(b) under the Securities ExchangeAct of 1934 (the “Exchange Act”). Based on that evaluation, our chief executiveofficer and chief financial officer have concluded that, as of the end of theperiod covered by this report, our disclosure controls and procedures areeffective in ensuring that information required to be disclosed in our ExchangeAct reports is (1) recorded, processed, summarized and reported in a timelymanner, and (2) accumulated and communicated to our management, includingour chief executive officer and chief financial officer, as appropriate toallow timely decisions regarding required disclosure.

**Management’s Report on Internal Control Over FinancialReporting**

Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting. Because of its inherent limitations, internal control overfinancial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation ofour management, we assessed the effectiveness of our internal control overfinancial reporting as of January 31, 2007. In making this assessment, weused the criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission in “Internal Control—Integrated Framework”. Based on ourassessment we concluded that, as of January 31, 2007, the Company’sinternal control over financial reporting was effective based on thosecriteria.

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During December 2006,we purchased the assets of Pacific Services & Manufacturing, Inc.(PSM). Management has excluded PSM from its assessment of internal controlsover financial reporting as of January 31, 2007. PSM is a wholly-ownedsubsidiary for which total assets and total revenues represent 12% and lessthan 1%, respectively, of the related consolidated financial statement amountsas of and for the year ended January 31, 2007.

Management’s assessment ofthe effectiveness of our internal control over financial reporting as of January 31,2007, has been audited by PricewaterhouseCoopers LLP, an independent registeredpublic accounting firm, as stated in their report, which is included herein.

**Changes in Internal Control Over Financial Reporting**

There has been no changein the internal control over financial reporting that occurred during the threemonths ended January 31, 2007 that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

**CEO and CFO Certifications**

The certifications of ourChief Executive Officer and Chief Financial Officer required under Section 302of the Sarbanes-Oxley Act have been filed as Exhibits 31.1 and 31.2 to thisreport. Additionally, on June 21, 2006 our Chief Financial Officercertified to the New York Stock Exchange that he was not aware of any violationby Cascade of the New York Stock Exchange’s corporate governance listingstandards.

**Item 9B.**               OtherInformation

None.

**PART III**

**Item 10.**                 Directors,Executive Officers and Corporate Governance

Information regarding ourdirectors is set forth under the heading “Proposal 1: Election of Directors” inthe Company’s Proxy Statement for its 2007 Annual Meeting to be filed within120 days after our fiscal year end of January 31, 2007, (“Proxy Statement”)and is incorporated into this report by reference. Information regarding ourexecutive officers is set forth in Part I, of this report under “Officersof the Registrant.”

**Audit Committee**

We have aseparately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) ofthe Exchange Act. The members of the Audit Committee are Mr. Duane C.McDougall (Chair), Dr. Nicholas R. Lardy, Mr. James S. Osterman, Dr. NancyA. Wilgenbusch, and Mr. Henry W. Wessinger II, each of whom is independentas independence for Audit Committee members is defined under New York StockExchange listing standards applicable to Cascade.

**Audit CommitteeFinancial Expert**

Our Board of Directors hasdetermined that Duane C. McDougall, Chair of the Audit Committee, is an auditcommittee financial expert as defined in Item 407(d)(5) of Regulation S-Kof the Exchange Act and is independent as independence for Audit Committeemembers is defined under New York Stock Exchange listing standards applicableto Cascade.

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**Code of Ethics**

We have adopted a code of ethics and businessresponsibilities (“Code”) for directors, officers (including the CEO, CFO,principal accounting officer, and persons performing similar functions) andemployees, which is Exhibit 14 of this report. A copy of the Code isavailable on our website at *www.cascorp.com/investor*.Shareholders may also request a free copy of the Code from:

Cascade CorporationAttention: SecretaryPost Office Box 20187Portland, Oregon 97294-0187503-669-6300

We will post on ourwebsite any required amendments to or waivers granted under the Code pursuantto Securities and Exchange Commission or New York Stock Exchange disclosurerules.

**Item 11.**                 ExecutiveCompensation

Information regardingcompensation of our named executive officers, directors and certain mattersregarding the Compensation Committee of our Board of Directors is set forthunder the headings “Executive Compensation,” “Corporate Governance and OtherBoard Matters—Director Compensation” and “Compensation Committee Interlocks andInsider Participation,” in the Proxy Statement and is incorporated into thisreport by reference.

**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related Stock HolderMatters

Information concerning the security ownership ofcertain beneficial owners, directors, and executive officers of Cascade is setforth under the heading “VotingSecurities—Stock Ownership Of Certain Beneficial Owners And Management” in theProxy Statement and is incorporated into this report by reference.

Information regarding ourequity compensation plans is set forth under the heading “Equity CompensationPlan Information” in the Proxy Statement and is incorporated into this reportby reference.

**Item 13.**                 CertainRelationships and Related Transactions, and Director Independence

Information concerning theindependence of Cascade directors is set forth under the heading “CorporateGovernance and Other Board Matters—Board Independence” in the Proxy Statementand is incorporated by reference.

**Item 14.**                 PrincipalAccounting Fees and Services

Information concerningfees paid to our independent auditors is set forth under the heading “IndependentRegistered Public Accounting Firm” in the Proxy Statement and is incorporated intothis report by reference.

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**PART IV**

**Item 15.**                 Exhibitsand Financial Statement Schedules

**(a)  Index to Financial Statements**

|   | 1.     | *Consolidated Financial Statements*                                                                                            | ** ** | ** ** |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|   |   | Report of Independent Registered Public Accounting  Firm                                                                       |       | 33         |
|   |   | Consolidated Financial Statements:                                                                                             |       |       |
|   |   | Statements of Income for each of the three years in  the period ended January 31, 2007                               |       | 35         |
|   |   | Balance Sheets at January 31, 2007 and 2006                                                                               |       | 36         |
|   |   | Statements of Changes in Shareholders’ Equity for each  of the three years in the period ended January 31, 2007 |       | 37         |
|   |   | Statements of Cash Flows for each of the three years  in the period ended January 31, 2007                                |       | 38         |
|   |   | Notes to Consolidated Financial Statements                                                                                     |       | 39         |
|   | 2.     | *Financial Statement Schedule for each of the  three years ended January 31, 2007, 2006 and 2005.*                        | * *   | * *   |
|   |   | Valuation and Qualifying Accounts                                                                                              |       | 64         |

 

The individual financial statements of the registrantand its subsidiaries have been omitted since Cascade is primarily an operatingcompany and all subsidiaries included in the consolidated financial statements,in the aggregate, do not have minority equity interests and/or indebtedness toany person other than the registrant or its consolidated subsidiaries inamounts which together exceed 5% of the total consolidated assets at January 31,2007, except indebtedness incurred in the ordinary course of business which isnot overdue and which matures within one year from the year of its origination.

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3.   *Exhibits*

| Exhibit No. | ** ** | **Description** | ** ** |
|------------------|------------|-----------------|------------|
|             | 3          | .1              |       | Articles of Incorporation, as amended, filed as  Exhibit 4.1 to the Registration Statement on Form S-8  (Registration No. 333-111860) filed with the Commission on  January 12, 2004.(1) |   |
|             | 3          | .2              |       | Bylaws, as amended April 6, 2007. |   |
|             | 10         | .1              |       | Severance Agreement dated May 25, 2000, with  Richard S. Anderson, filed as Exhibit 3 to Form 10-K filed  with the Commission on May 1, 2001.(1)(2) |   |
|             | 10         | .2              |       | Severance Agreement dated May 25, 2000, with  Terry H. Cathey, filed as Exhibit 2 to Form 10-K filed with  the Commission on May 1, 2001.(1)(2) |   |
|             | 10         | .3              |       | Severance Agreement dated May 25, 2000, with  Robert C. Warren, Jr., filed as Exhibit 1 to Form 10-K  filed with the Commission on May 1, 2001.(1)(2) |   |
|             | 10         | .4              |       | 1999 Amendment and Restatement of the Cascade  Corporation 1995 Senior Managers’ Incentive Stock Option Plan filed as  Exhibit 4.3 to the Registration Statement on Form S-8  (Registration No. 333-103581) filed with the Commission on  March 4, 2003.(1)(2) |   |
|             | 10         | .5              |       | Form of Stock Option Agreement for 1999  Amendment and Restatement of the Cascade Corporation 1995 Senior Managers’  Incentive Stock Option Plan filed as Exhibit 10.5 to Form 10-K  filed with the Commission on April 18, 2005.(1)(2) |   |
|             | 10         | .6              |       | Cascade Corporation Stock Appreciation Rights Plan,  filed as Exhibit 10.6 to Form 10-K with the Commission on  April 17, 2006.(1)(2) |   |
|             | 10         | .7              |       | Form of Stock Appreciation Rights Agreement for  Cascade Corporation Stock Appreciation Rights Plan filed as Exhibit 10.7  to Form 10-K filed with the Commission on April 18,  2005.(1)(2) |   |
|             | 10         | .8              |       | Summary of Non-Employee Director and Named Executive  Officer Compensation Arrangements.(2) |   |
|             | 10         | .9              |       | Loan Agreement dated February 28, 2003, among  Cascade Corporation, Bank of America, N.A., Union Bank of California, N.A.,  and Bank of America, N.A. as agent, filed as Exhibit 10.1 to Form 8-K  filed with the Commission on December 18, 2006.(1) |   |
|             | 10         | .10             |       | Amendment to Credit Agreement dated June 29,  2005, among Cascade Corporation, Bank of America, N.A., Union Bank of  California, N.A., and Bank of America, N.A. as agent, filed as  Exhibit 10.2 to Form 8-K filed with the Commission on  December 18, 2006.(1) |   |
|             | 10         | .11             |       | Second Amendment to Credit Agreement dated  February 24, 2006, among Cascade Corporation, Bank of America, N.A.,  Union Bank of California, N.A., and Bank of America, N.A. as agent, filed as  Exhibit 10.3 to Form 8-K filed with the Commission on  December 18, 2006.(1) |   |
|             | 10         | .12             |       | Third Amendment to Loan Agreement dated  December 12, 2006, among Cascade Corporation, Bank of America, N.A.,  Union Bank of California, N.A., and Bank of America, N.A. as agent, filed as  Exhibit 10.4 to Form 8-K filed with the Commission on  December 18, 2006.(1) |   |
|             | 10         | .13             |       | Asset Purchase Agreement dated December 14,  2006, among Pacific Services & Manufacturing, Inc., Walter  Pisco, PSM LLC, and Cascade Corporation, filed as Exhibit 2.1 to  Form 8-K filed with the Commission on December 20, 2006.(1) |   |
|             | 14         |            |       | Code of Ethics and Business Responsibilities for  Directors, Officers, and Employees, filed as Exhibit 14 to Form 10-K  filed with the Commission on April 17, 2006.(1) |   |
|             | 21         |            |       | Subsidiaries of the registrant. |   |
|             | 23         |            |       | Consent of PricewaterhouseCoopers LLP, Independent  Registered Public Accounting Firm. |   |

 

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| Exhibit No. | ** ** | **Description** |   |
|------------------|------------|-----------------|--------|
|             | 31         | .1              |   | Certification of Chief Executive Officer |   |
|             | 31         | .2              |   | Certification of Chief Financial Officer |   |
|             | 32         |            |   | Certification of  Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 |   |

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(1)          Incorporated byreference.

(2)          Indicates managementcontract or compensatory plan or arrangement.

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant, CASCADE CORPORATION has duly caused this annualreport to be signed on its behalf by the undersigned thereunto duly authorized.
|        | CASCADE CORPORATION |
|--------|---------------------|
|   | By:                 | /s/  RICHARD S. ANDERSON |
|   |                | Richard S.  Anderson |
|   | * *            | *Senior  Vice President and  Chief Financial Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934 this report has beensigned below by the following persons on behalf of the registrant and in thecapacities on the dates indicated.
| /s/ ROBERT C. WARREN, JR. |   | President and Chief Executive Officer, and Director |   | April 13, 2007 |
|--------------------------------|--------|-----------------------------------------------------|--------|---------------------|
| Robert C.  Warren, Jr.    |   | (Principal Executive Officer)                       |   | Date                |
| /s/  RICHARD S. ANDERSON       |   | Senior Vice President  and Chief Financial Officer  |   | April 13, 2007 |
| Richard S.  Anderson           |   | (Principal Financial and Accounting Officer)        |   | Date                |
| /s/  JAMES S. OSTERMAN         |   | Director                                            |   | April 13, 2007 |
| James S. Osterman              |   |                                                |   | Date                |
| /s/  NICHOLAS R. LARDY         |   | Director                                            |   | April 13, 2007 |
| Nicholas R. Lardy              |   |                                                |   | Date                |
| /s/  DUANE C. MCDOUGALL        |   | Director                                            |   | April 13, 2007 |
| Duane C.  McDougall            |   |                                                |   | Date                |
| /s/  HENRY W. WESSINGER II     |   | Director                                            |   | April 13, 2007 |
| Henry W.  Wessinger II         |   |                                                |   | Date                |
| /s/  NANCY A. WILGENBUSCH      |   | Director                                            |   | April 13, 2007 |
| Nancy A.  Wilgenbusch          |   |                                                |   | Date                |

 

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**EXHIBITINDEX**
| Exhibit No. | ** ** | **Description** | ** ** |
|------------------|------------|-----------------|------------|
|             | 3          | .1              |       | Articles of  Incorporation, as amended, filed as Exhibit 4.1 to the Registration  Statement on Form S-8 (Registration No. 333-111860)  filed with the Commission on January 12, 2004.(1) |   |
|             | 3          | .2              |       | Bylaws, as  amended April 6, 2007. |   |
|             | 10         | .1              |       | Severance  Agreement dated May 25, 2000, with Richard S. Anderson, filed as  Exhibit 3 to Form 10-K filed with the Commission on  May 1, 2001.(1)(2) |   |
|             | 10         | .2              |       | Severance  Agreement dated May 25, 2000, with Terry H. Cathey, filed as  Exhibit 2 to Form 10-K filed with the Commission on  May 1, 2001.(1)(2) |   |
|             | 10         | .3              |       | Severance  Agreement dated May 25, 2000, with Robert C. Warren, Jr., filed as  Exhibit 1 to Form 10-K filed with the Commission on  May 1, 2001.(1)(2) |   |
|             | 10         | .4              |       | 1999 Amendment  and Restatement of the Cascade Corporation 1995 Senior Managers’ Incentive  Stock Option Plan filed as Exhibit 4.3 to the Registration Statement on  Form S-8 (Registration No. 333-103581) filed with the  Commission on March 4, 2003.(1)(2) |   |
|             | 10         | .5              |       | Form of  Stock Option Agreement for 1999 Amendment and Restatement of the Cascade  Corporation 1995 Senior Managers’ Incentive Stock Option Plan filed as  Exhibit 10.5 to Form 10-K filed with the Commission on  April 18, 2005.(1)(2) |   |
|             | 10         | .6              |       | Cascade  Corporation Stock Appreciation Rights Plan, filed as Exhibit 10.6 to  Form 10-K filed with the Commission on April 17, 2006.(1)(2) |   |
|             | 10         | .7              |       | Form of  Stock Appreciation Rights Agreement for Cascade Corporation Stock  Appreciation Rights Plan filed as Exhibit 10.7 to Form 10-K  filed with the Commission on April 18, 2005.(1)(2) |   |
|             | 10         | .8              |       | Summary of  Non-Employee Director and Named Executive Officer Compensation  Arrangements.(2) |   |
|             | 10         | .9              |       | Loan Agreement  dated February 28, 2003, among Cascade Corporation, Bank of America,  N.A., Union Bank of California, N.A., and Bank of America, N.A. as agent,  filed as Exhibit 10.1 to Form 8-K filed with the Commission  on December 18, 2006.(1) |   |
|             | 10         | .10             |       | Amendment to  Credit Agreement dated June 29, 2005, among Cascade Corporation, Bank of  America, N.A., Union Bank of California, N.A., and Bank of America, N.A. as  agent, filed as Exhibit 10.2 to Form 8-K filed with the  Commission on December 18, 2006.(1) |   |
|             | 10         | .11             |       | Second Amendment  to Credit Agreement dated February 24, 2006, among Cascade Corporation,  Bank of America, N.A., Union Bank of California, N.A., and Bank of America,  N.A. as agent, filed as Exhibit 10.3 to Form 8-K filed with  the Commission on December 18, 2006.(1) |   |
|             | 10         | .12             |       | Third Amendment  to Loan Agreement dated December 12, 2006, among Cascade Corporation,  Bank of America, N.A., Union Bank of California, N.A., and Bank of America,  N.A. as agent, filed as Exhibit 10.4 to Form 8-K filed with  the Commission on December 18, 2006.(1) |   |
|             | 10         | .13             |       | Asset Purchase  Agreement dated December 14, 2006, among Pacific Services &  Manufacturing, Inc., Walter Pisco, PSM LLC, and Cascade Corporation,  filed as Exhibit 2.1 to Form 8-K filed with the Commission on  December 20, 2006.(1) |   |

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|        | 14 |   |   | Code of Ethics  and Business Responsibilities for Directors, Officers, and Employees, filed  as Exhibit 14 to Form 10-K filed with the Commission on  April 17, 2006.(1) |   |
|--------|----|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | 21 |   |   | Subsidiaries of  the registrant.                                                                                                                                                        |   |
|   | 23 |   |   | Consent of  PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.                                                                                                  |   |
|   | 31 | .1     |   | Certification of  Chief Executive Officer                                                                                                                                               |   |
|   | 31 | .2     |   | Certification of  Chief Financial Officer                                                                                                                                               |   |
|   | 32 |   |   | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350                                                                          |   |

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(1)          Incorporated by reference.

(2)          Indicates managementcontract or compensatory plan or arrangement.

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